By Paul Chung and Jennifer McMackin
In the strains of operating remotely during an uncertain economic environment coupled with high market volatility and more stringent regulations, it becomes even more critical for investment operations managers to have automated and streamlined processes. High volumes of transactions and data is the new norm. The front lines of the industry have received plenty of expert advice to help firms address ongoing concerns of endowments, pension plans and other clients.
But how much attention has been paid to the back office and the important role it plays to support client interactions while also mitigating operational and compliance risk? How resilient will firms’ post-trade operations remain in remote work environments? Should firms outsource key parts of their reconciliation process to reduce the risk of multiple points of failure?
In recent years, and especially now, the asset management community is adopting Electra’s managed services for reconciliation and data aggregation. Here’s why.
Firms Remain Under the Microscope
The status quo is a thing of the past as investors take a closer look at their asset manager’s ability to respond to adversity through portfolio rebalancing and reallocation. Firms with the most efficient processes and the strictest guidelines to minimize exposure and loss are the ones that shine during difficult times. Investors are now more critical in how their investments are being monitored, who is supervising them, and what controls are in place. Even after this crisis, investors may continue this high-touch trend with their firms. Electra Managed Services has helped firms improve their operations and service quality by ensuring a high level of operational consistency and business continuity.
Data Providers Feel the Impact
Since March 2020, we’ve seen a significant increase in data volume through our Electra Data aggregation service. Not surprisingly, delays in file delivery from custodians and other organizations were more common and frequent in the first two months of the pandemic as providers warned of extended wait times for data and client service support. This created even more stress on operations teams experiencing shorter windows to process trades and handle exceptions, especially teams who are still manually pulling in data while dealing with increased volumes across the board.
Operations Teams Are Strained
In the early days of the pandemic, the dramatic and swift downturn in market performance had created back-office workloads that were markedly heavier than normal. A significant amount of the burden fell on the operations team to compile client information for their firm’s front lines. This was especially underscored as staff adjusted to working remotely while managing higher volumes of trades, long reconciliation processing times, and increased trade fails and settlements.
Yet, typically, a firm’s operations department is still viewed as a cost center and is often the first to take the brunt of an economic downturn, whether short- or long-term. In reality, however, back-office operations functions – particularly reconciliation, data aggregation, and settlement workflows – play key roles in risk mitigation throughout the trade lifecycle. And, finding and retaining skilled operations professionals is always a challenge, even in the best of times. As cost pressures increase and margins narrow, many asset management firms face difficult decisions on how to best allocate resources today and in the future.
A Valuable Resource Emerges
An automated process not only can help eliminate immediate back-office stress; it can also “learn” and become more efficient over time. A more productive operations team adds greater value since manual processes are removed and replaced by efficient workflows. Firms who are the most strained by inefficient operations are turning to right-sourcing, co-sourcing or managed service models to help alleviate the back-office workload.
Electra offers such a model – Electra Managed Services – run by professionals who are knowledgeable about investment operations workflows. The service also includes Electra Data which collects, aggregates, manages and normalizes data feeds while maintaining provider relationships on your behalf. As a result, Electra handles much of the heavy lifting, efficiently manages volume fluctuations, and virtually eliminates the need for your firm to hire and retain additional, hard-to-find operations personnel today or down the road.
Moving Forward with Confidence
No one can truly predict how long this crisis will last or what long-term effects may remain for buy-side firms. Many investment managers are asking themselves what they will do if faced with layoff decisions in the future, and how to increase or maintain operational resilience. Whatever happens next, now is not the time to unwind or begin a backward trajectory on automated processes. Volumes will likely keep increasing for some time until uncertainty begins to subside.
Luckily, investment managers today have more options available to help, without the disruption and risk of lift-outs or full outsourcing arrangements. One such option is Electra’s Managed Services, which can serve as an extension of your back office to take on the most intensive parts of your process – such as data collection, normalization and matching – and become an integral resource that helps you maintain stability through difficult times. What’s more, you’ll have a unique opportunity to reduce multiple points of failure, improve your processes, and enable your internal team to focus on more value-added tasks such as true exceptions.
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Paul Chung is senior vice president of Electra's client services and support. Jennifer McMackin is senior vice president and lead for Electra Data and also oversees Electra Managed Services.