Operational alpha and reconciliation solutions for growing asset managers

Abstract

Asset managers around the world are competing for valued and sought-after
investor capital and are striving to deliver alpha in a way that sets them
apart from other firms. The quest for alpha traditionally has been associated
with investment strategy and performance, but it is now increasingly
understood and accepted that a similar concept also applies to operations. As
a result, it is strategically imperative that firms design their middle and
back-office operating models in a manner that is capable of delivering such
operational alpha as part of the overall investment experience. This requires
identifying and focusing on operational core competencies, with an
understanding that improving operations and garnering efficiencies can be
achieved by embracing and implementing a component outsourcing model, where
certain aspects involved in the life of a trade should remain in-house, while
other aspects should be completely outsourced. The process of determining
which components to outsource will be a unique experience for each firm and
will require each firm to examine all aspects or stages involved in the life
of a trade. The focus of this paper is specifically on the reconciliation
process and the importance of having a scalable reconciliation solution in
place that can accommodate expansion and enable growth. Having a high-quality
reconciliation process is considered paramount in the eyes of operations
executives and investors alike, and should be considered essential to any
comprehensive operations ecosystem. Consequently, emphasis should be placed
on developing an institutional-quality reconciliation process that meets both
internal and external needs. Internally, this needs to provide enhanced
internal controls and improve overall risk management. Externally, the
process needs to be embraced by existing and prospective investors, and must
stand up well to rigorous due diligence examinations from institutional
investors and consultants, which ultimately is integral to successfully
fostering growth in assets under management.