By: Inderjit Gawera
We recently introduced our two-part series on easing the complexities of investment operations with a post about options to integrate systems, The Challenge of Complexity: Approaches to Investment Operations Integration. This second post will dive further into the challenges of investment operations, closely analyzing the automation of middle and back office processes.
Automation Across the Middle and Back Office
Increased requirements and the need for efficient and cost-effective solutions have forced asset managers to use workaround solutions within their investment operations. For example, workarounds could be comprised of manual processes to update data, to process obscure corporate actions exceptions, or manipulate bespoke costing rules for specific instrument types within component solutions.
Where risks and overhead costs can be managed and volumes are low, these workarounds are viable. However, growth in volumes, complexity in instruments, increasing resource costs, and shorter windows of opportunity are forcing asset managers to find automated solutions to streamline operations.
The need for scalability through automation is being driven from all angles. Market activity is fragmented across geographies, assets classes, and fund types; clients want greater transparency; and regulators are issuing new mandates. Basic jurisdictional rules and fund accounting methods must also be accommodated.
Scalability cannot be achieved by simply increasing man hours. There is operational risk in manual processes, especially where people are working under pressure. An example of regulatory change that necessitates automation and scalability is the T+2 (trade date plus two business days) settlement cycle. The tighter timeframe puts pressure on asset managers and servicers. Failed trades must be tracked intra-day and acted on immediately, with automation picking up the operational burden as much as possible through an exceptions-based workflow.
Automated workflow is another area of focus driven by these demands. Processes within typical investment operations solutions require a number of dependent steps to be executed sequentially. Manual oversight leads to missed SLAs through operational downtime between sequential jobs.
Automated workflows drive business processes through fund accounting and administration systems, with clear and relevant status visibility to ensure exceptions are captured and staff immediately notified.
Only in such an integrated environment can straight-through processing support the new market requirement and associated portfolio accounting and fund administration processes within tight service level agreements.
Exceptions-based management is the only way to handle the increased investment data load. It automates straight-through processing so decisions on the anomalies can be made and acted upon quickly.
As we mentioned in part one of our series, SS&C’s HiPortfolio is one solution that can address the investment operations challenges you face. To learn how HiPortfolio can streamline your investment operations and support new products and services, download our brochure.