By Geoff Hodge, CEO Milestone Group
Efficiency has been at the top of the funds industry agenda for more than a decade. Technology vendors and outsourced service providers have flourished on the back of efforts to improve output while reducing costs.
Naturally, much of this effort has been directed at core processes and competencies such as fund accounting, transfer agency and investment operations or ‘middle office’. But this has left an important group of activities that are not serviced by core platforms. These are the activities that can be collectively referred to as fund processing, also known as fund administration in the US, and which have been left to fragmented and often chronically inefficient spread sheets or manual processing.
But as the industry matures, the margins are no longer there to pay for inefficient practices or to cover the costs of operational risk. With regulators becoming increasingly aggressive about robust and transparent infrastructure, and placing a premium on fiduciary responsibilities and investor protection, a growing number of funds and administration businesses are starting to look again at these remaining pools of inefficiency.
And with good reason. Fund processing is an emerging focus area for business transformation, with the potential to yield the highest immediate return on technology investment. Milestone Group’s own analysis shows that these functions tie up approximately 40 per cent of all middle and back-office staff effort, and represent about 70 per cent of the operational risk. As these figures demonstrate, the potential of the opportunity is significant.
A problem of definition
One of the reasons that fund processing has evaded the efficiency spotlight for so long is that it is something of a grab-bag of processes, with no real agreement about what it consists of. Often, the way these types of activities are defined crosses over with fund accounting and transfer agency activities, further hindering clear focus on the opportunity. More recently, these functions are often best identified as the key functions that are ‘left over’ after a firm has outsourced a portion of its operations.
However, it is possible to view fund processing as a distinct area of activity, in which a number of key functions can be identified. The list can be lengthy, but includes NAV validation, often striking NAVs or unit prices across more complex fund of fund or investment structures, cash allocation and rebalancing for multi-tiered investment structures, tax and fund expense forecasting and expense cap management and more. As this list alone indicates, fund processing is often a breeding ground for fragmentation, inefficiency and operational risk.
- Validating the daily net asset value (NAV) and often striking NAVs or unit prices across more complex fund of fund or investment structures.
- Cash allocation and rebalancing for multi-tiered investment structures.
- Processing fund distributions and settling distributed income within multi-tiered investment structures.
- Reconciliation of holdings, transactions and cash between internal systems and external service providers and IBOR/ABOR reconciliations.
- Managing data connectivity both within the client environment and to industry-wide counterparties and service providers.
- Tax and fund expense forecasting and expense cap management.
- Fee and rebate management to support recovery of fund distributor’s fees from asset managers.
- Production of financial statements.
- Regulatory reporting.
The second problem is the widely held, but erroneous, belief that automating this array of functions will require either a series of point solutions that will then need to be connected, or constructing a new all-encompassing enterprise-level platform, with all the attendant disruption that this inevitably incurs. Understandably, neither of these options is popular.
But firms increasingly recognise that there is a third way. These disparate functions can be viewed as a single set of fund-related activities with a common set of challenges and opportunities. They often share common data and require an understanding of the same fund structure; they may also be interdependent in their operational execution. If thought about in the right way, these processes are not as diverse as first appears, and can therefore be automated on a single platform that exploits their common features, and allows functions to be added sequentially over time but – critically – offers a much simplified operational design. From there it is a short step to finding solutions that have the appropriate set of characteristics to achieve this.
Process vs. production management
If identifying fund processing is the first step to making it more efficient, the next step is a little less obvious. Not least because part of the solution can be found in the archives. In the 1970s, Bank of America hired an executive from Chrysler, the car-manufacturing giant. The reason was that he knew how to design processing systems when bankers and fund managers didn’t. By importing the latest thinking about process design and quality management from manufacturing, the banks themselves saw improvements to their own workflow.
Fast-forward to the 21st Century, and banks and other financial institutions habitually apply Six Sigma principals and other techniques to improve their process management. But in the intervening years, manufacturers have continued to push down the real costs of finished goods year on year through effective production management – which offers a different perspective on efficiency, and requires a step change in thinking about technology and its deployment.
To date, financial institutions have delivered efficiency through effective process management. They have constructed logical sequential processes – like Chrysler’s production line – along which various functions will be performed. By looking at one area of their workflow, and cutting the fat from that, before moving on to the next area and the next, each individual process in the workflow has become as efficient and streamlined as possible.
But this method has maxed out. For the vast majority of firms, the piecemeal approach of best-of-breed process management has been stretched to its elastic limit – and it isn’t going to deliver any more.
This is where production management comes into play. Rather than taking this incremental approach and looking at individual processes, production management looks at all those processes together and how they interact with each other. Where process management develops an efficient workflow, production management zooms out to see what else is going on. Rather than attempting to fine tune the production line for ever-diminishing returns on effort, it looks at the interaction of a variety of processes to unlock significant new efficiencies.
In our car manufacturing plant, process management originally delivered a carefully calibrated series of sequential and simultaneous activities. But production-management thinking has encouraged the development of a single production line that can be tooled up such that it can produce a convertible one day, a station wagon the next and an SUV the next.
When translated to fund processing, a production management mind-set offers the same flexibility: a single platform that can value funds, allocate cash, and process income according to demand. Where process management says, “Build me the cheapest tool to handle allocations”, production management says, “Get me the cheapest portfolio of tools to process all potential fund activity”.
Thinking straight, thinking strategic
In other words, unlocking the efficiency gains from fund processing and its varied functions is very much about getting the right mind-set and then making sure that technology supports that approach.
A production management mind-set enables a firm to set out on a more strategic path towards its ideal operating model and make better decisions even within the same budget parameters, resource constraints and short-term priorities. The difference is that even as change is rolled out in manageable increments, short-term decisions will not limit the firm’s ability to meet its long-term strategy, or divert it from its chosen path. It gives the firm the confidence of knowing that any processes that may need to be re-engineered, added or automated in the future can be dealt with in the same platform.
That opens up a much wider pool of opportunities for generating efficiencies. It also means that the firm is no longer constrained by the need to join up numerous point solutions or ‘stage’ data between different systems – the equivalent of pouring concrete over a production line.
Staying connected: keeping the numbers moving in the finance industry
By Robert Gibson-Bolton, Enterprise Manager, NetMotion
2020 will certainly be hard to forget. Amongst the many changes we have come to live with, for many of us it has been adapting to a new style of working. Whatever your take on it is, remote working, working from home or even agile working, one thing remains clear – for many of us, this could be the new-normal for the foreseeable future. The professional services sector is no different. For example, many finance practices around the world are now allowing staff to work from home part of the time. In addition, a recent KPMG report found that half of the UK’s financial services workforce want to work from home after COVID-19.
Will this therefore become the de facto working practice for the finance industry too? We can’t say for sure, but this agile approach to working has certainly caused a major rethink for many firms. And as they evolve and adapt to meet the demands of a different way of working, firms need to ensure that their workforce can seamlessly interact with each other and their clients – this is key if they want to continue to deliver exceptional client service. Whilst financial services organisations everywhere are busy adopting innovative new technologies to better reflect the ‘work from anywhere environment’, they need to ensure secure access to resources and strive towards enhancing the end user experience. Success will be replicating the office working experience at home or wherever else they may be.
It’s all well and good for a firm to boast about the ability of their staff to work successfully from home, but how do they also establish that their people are just as productive as they were before? Whilst the IT department will have to grapple with security and compliance issues that arise from agile and remote working, they must also ensure that their people can connect securely, without eschewing user experience. And it needs to be completely seamless, without compromising the service level provided to clients.
Why all the fuss?
Which brings us nicely to persistent connectivity. Persistent connectivity effectively allows you to do more. How frustrating for the user when connectivity drops, or when the device that they are working on can’t find a network to connect to (or if the device switches between different networks). When connectivity drops, and re-connection is required then there is that small period where the user is not connected at all. And the user might have to re-authenticate or log into their VPN again (most VPNs are rubbish when they lose connectivity). All of these different scenarios ultimately disrupt the user experience – persistent connectivity provides the flexibility to overcome these challenges. When you enjoy consistent connectivity, you are making sure that the technology works as it was designed to work, allowing staff to rely on optimum user experience, anytime, anywhere – in effect, supplying them with that office-like experience, wherever they are. Just think about how many hours might be spent on a train, in a hotel or even on a client site. Consistent connectivity is key here – consistent in any of these locations.
Connectivity will be a fundamental component for successful remote working as firms try to meet the demands of an increasingly mobile workforce. Ultimately, they need encrypted and reliable connections that enable them to quickly and easily reach business applications and services. Working in a disconnected environment can lead to frustrated workers, hardly fitting given all the new remote working policies in place.
Getting the user experience spot-on
When you fine-tune connection performance so that essential business applications run reliably across networks, you are essentially talking about traffic optimization. Mobile traffic optimization ensures that applications, resources and connections are tuned for weak and intermittent network coverage and can roam between wireless networks as conditions and availability change. When connections aren’t performing well, applications that are crucial for job performance can experience packet loss, jitter or latency that can make working on the hoof extremely tricky. Compared to wired networks, wireless networks operate under highly variable conditions, including such factors as terrain or congested mobile towers. When you optimise the flow of traffic, you are helping to manage packet loss. Effectively, packet losses are data loss, which happens very regularly when you’re on the move or transitioning between different networks. Applications that require a lot of data tend to become fairly unusable when you hit even minor packet loss, which can be a common occurrence for many on residential broadband or on local Wi-Fi. conversely, NetMotion can enable critical applications to work and prevent disruptions at over 50% packet loss – in this way, employees can rely on technology performing well in situations and locations where it simply could not before. That is incredibly powerful for firms.
The finance industry is facing many of the same challenges presented to other industries. It is a question of balancing the requirement for more sophisticated ways to ensure secure access to resources with the need to enhance the end user experience (key team members in particular). For finance firms everywhere, adopting the right technologies will ensure that their people can enjoy a ‘work-from-anywhere’ environment.
Hong Kong’s Cathay Pacific warns of capacity cuts, higher cash burn
(Reuters) – Cathay Pacific Airways Ltd on Monday warned passenger capacity could be cut by about 60% and monthly cash burn may rise if Hong Kong installs new measures that require flight crew to quarantine for two weeks.
Hong Kong’s flagship carrier said the expected move will increase cash burn by about HK$300 million ($38.70 million) to HK$400 million per month, on top of current HK$1 billion to HK$1.5 billion levels.
Hong Kong is set to require flight crew entering the Asian financial hub for more than two hours to quarantine in a hotel for two weeks, the South China Morning Post reported last week, citing sources.
“The new measure will have a significant impact on our ability to service our passenger and cargo markets,” Cathay said in a statement, adding that expected curbs will also reduce its cargo capacity by 25%.
The airline, in an internal memo seen by Reuters, requested for volunteers among its crew who could fly for three weeks, followed by two weeks of quarantine and 14 days free of duty, adding it will be a temporary measure and not all its flight will require such an operation.
“We continue to engage with key stakeholders in the Hong Kong Government,” the memo said.
The government did not immediately respond to a request for comment.
Separately, a company spokeswoman said the airline could not detail the impact on vaccine transport specifically in terms of cargo shipments.
The aviation industry has been hit hard by the COVID-19 pandemic as many countries imposed travel restrictions to contain its spread.
In December, Cathay’s passenger numbers fell by 98.7% compared to a year earlier, though cargo carriage was down by a smaller 32.3%.
($1 = 7.7512 Hong Kong dollars)
(Reporting by Shriya Ramakrishnan in Bengaluru; Additional reporting by Jamie Freed in Sydney and Twinnie Siu in Hong Kong; Editing by Bernard Orr and Arun Koyyur)
Travel stocks pull FTSE 100 lower as virus risks weigh
By Shashank Nayar
(Reuters) – London’s FTSE 100 fell on Monday, with travel stocks leading the declines, as rising coronavirus infections and extended lockdowns raised worries about the pace of economic growth, while fashion retailers Boohoo and ASOS gained on merger deals.
The British government quietly extended lockdown laws to give councils the power to close pubs, restaurants, shops and public spaces until July 17, the Telegraph reported on Saturday.
The blue-chip FTSE 100 index dipped 0.1%, with travel and energy stocks falling the most, while the mid-cap index rose 0.1%.
“Stock markets are crawling between optimism around the rollout of vaccines and worries that a jump in virus infections and fresh local lockdowns could further affect recovery prospects,” said David Madden, an analyst at CMC Markets.
Britain has detected 77 cases of the South African variant of COVID-19, the health minister said on Sunday while urging people to strictly follow lockdown rules as the best precaution against the country’s own potentially more deadly variant.
Prime Minister Boris Johnson had earlier warned that the government could not consider easing lockdown restrictions with infection rates at their current high levels and until it is confident that the vaccination programme is working.
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy.
Online fashion retailers Boohoo and ASOS surged 4.8% and 5.9%, each. Boohoo bought the Debenhams brand, while ASOS was in talks to buy the key brands of Philip Green’s collapsed Arcadia group.
Recruiter SThree Plc gained 0.9% after its profit, which nearly halved, still managed to beat market expectations and the company said it had resumed dividends.
(Reporting by Shashank Nayar in Bengaluru; editing by Uttaresh.V)
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