Asset management challenges in operations loom large, and firms must take action on what’s pressing hardest in the middle and back office.
Asset managers have enough on their plate as it is…
Two-thirds of asset management executives anticipate significant margin compression over the next 2 years, according to a survey from Carne Group.
High operating costs, fee pressure, the rise of passive management, regulations, fixed technology costs, not to mention market volatility, are all contributing factors.
While broader macroeconomic trends, political decisions, and global conflict are things regular people and businesses cannot control, operations is an area that asset managers can- and should - have control over.
Across all departments, one can list and analyze all the challenges at play. For now, we will focus on operations, a fundamental piece of the puzzle to solve first.
Even if inflation numbers are down from recent highs, persistently high costs remain.
Labor, data, technology… everything is up across the board.
Add workflow inefficiencies into the mix (i.e. manual trade reconciliations), and it’s a runaway train of increasing expenses, potentially costing millions.
Outsourcing non-core tasks like reconciliation and performance reporting can bring down fixed costs, in some cases as much as 40% annually.
Automating straightforward, routine tasks can also boost efficiency and bring down costs.
Asset management outsourcing operations providers like Empaxis leverage economies of scale, accelerating turnaround times and delivering accurate and reliable reports, custom-tailored for each firm. Empaxis also implements RPA, intelligent automation, and machine learning for asset managers.
Legacy systems can easily falter under the weight and pressure of modern asset management demands, causing process delays and errors.
Aging portfolio management and accounting tools struggle with multi-currency reporting, complex corporate actions and instruments like derivatives.
All this can force teams to manually input data into spreadsheets, which can result in miscalculations.
That said, breaking free from IT infrastructures deeply entrenched in a firm for years - even decades - is not the easiest of tasks, especially going it alone.
Considering the challenges of legacy and locally stored software, moving away from such and over to cloud-native portfolio accounting and asset management platforms can deliver much greater results.
More robust features and functions, better integrations, the ability to process multi-currency and complex transactions…
… and no need to pay for expensive upgrades and maintenance costs.
At Empaxis, we also help asset managers in the data migration and implementation process over to the new platform, taking ownership from start to finish, building a future-proof setup.
This is a common situation and problem for many firms.
Custodians, portfolio accounting systems, CRMs, OMS, risk management platforms… they’re not all integrated, and their data is stored across multiple locations, requiring multiple logins…
You can imagine all the manual steps involved: logging in, clicking, downloading, copying, pasting, typing, calculating….
You can also imagine the mistakes, delays, wasted time…
Errors in client and compliance reports, wrong metrics and analyses…
All courtesy of poor integration and disjointed systems, caused in large part by legacy tech.
Related to adoption of new technology, selecting a data warehouse platform for asset managers will deliver better outcomes.
Seamlessly integrating with other systems and accepting various investment data formats and details, the right data warehouse:
Manual activities have been mentioned a few times already, but it deserves its own section now.
One survey found that over half (55%) of asset owners are “still using spreadsheets for manual data consolidation, wasting as much as a week every month – time that could be better spent optimizing the portfolio.”
A misplaced decimal or improperly inputted transaction… Even one small unintended mistake in reconciliation can lead to major critical errors in reporting, eroding client trust and potentially landing in regulatory hot water.
Manual miscalculations in billing can resulting in overcharging or undercharging the clients.
Deploying bots for middle- and back-office functions (recon, performance, billing, NAV) can speed up processes, reduce errors, eliminate bottlenecks, and save costs over the long term.
Again, firms don’t have to do the setup themselves. They can partner with asset management automation experts like Empaxis that actively program, deploy, and maintain bots for medium- to large-sized asset management firms.
Learn more about RPA in financial services.
With T+2 to T+1 reporting, more audits and compliance requirements, overall greater scrutiny and ever-changing rules from the SEC… more asset management challenges in operations to deal with.
One study found that 41% of asset managers view keeping up with regulatory changes as the greatest threat to their operations.
Missed deadlines and errors in client reporting can result in massive fines and loss of reputation, landing right in the SEC’s doghouse.
There’s a mix of solutions at play.
AI powered RegTech compliance tools can streamline the capture, flow, and aggregation, and analysis of data.
Similarly, automating compliance functions, including 13D and 13F reports with Empaxis, can lighten the load.
Thirdly, partnering with asset management compliance consulting experts that focus exclusively on the industry can simplify processes.
Lastly, and tying back to many points mentioned already, asset managers need up-to-date systems and processes, making it easy to consolidate investment data and multiple from multiple locations and easily add into the necessary compliance reports.
When employees come and go — and when there’s little or no documentation of processes they once managed — that creates serious key personnel risk.
Reliance on a single employee’s portfolio accounting and MBO knowledge is a dangerous bet. They switch jobs, they retire, they get sick, they take time off…
Their absence and no one else to take over will bring operations to a grinding halt, delaying client deliverables and hurting the company.
Don’t underestimate the importance of documentation.
Make sure to thoroughly document processes, fool-proofing and leaving no room for doubt.
If concerned about turnover and replacing key members, one preferred solution is to partner with MBO outsourcing providers that can easily add resources for asset managers.
These resources, ideally trained in portfolio accounting and capital markets, can step right in and take over the daily operational functions, with minimal friction getting started.
At Empaxis, not only do we provide these trained resources (including backups to ensure continuity), we also refine and build documentation around the workflows, giving them (back) to the client.
Asset management challenges in operations need not define the firm.
By modernizing and upgrading technology, streamlining data processes and getting rid of silos, leveraging advanced automation in operational workflows, creating documentation as well as partnering with third-party vendors, asset managers can make serious (and successful) attempts to slash costs, strengthen and scale operations, enhance compliance, reduce risk, and free up teams to focus on higher-value activities for clients.
These aren’t just hypothetical solutions; they’re proven to work, as Empaxis has seen and implemented firsthand for the investment management industry.
Like we said, asset managers can’t control the external factors, but by better controlling the internal - starting with investment operations - these firms can better handle whatever the external throws at them.
Our monthly newsletter features helpful resources, articles, and best practices to implement within technology providers and investment firms
