Operational capabilities are at the core of everything an asset manager does.
Even the most unique investment strategy or innovative business model cannot be sustained without effective infrastructure, processes and teams. The so-called plumbing of the industry has always been valued implicitly, but it is no longer taken for granted. Investors, consultants and platforms alike value operational expertise as a vital component of any value proposition. Combined with the transformative potential of data and technology, operations are now rightfully viewed by many managers as a powerful competitive weapon.
The very nature of operations is to focus attention on the day-to-day. Ensuring that reconciliation, reporting and regulatory compliance are correct and up-to-date are understandably the primary concerns of most people employed in operational roles. There is a tendency to trust the tried and true. Improvement, if it happens at all, is incremental. This tactical myopia means there is often little room for strategic maneuvering. While this may not have been consequential in a more benign environment, it is extremely problematic in the context of the challenges outlined in the five factors highlighted in this series. Efficiency, sustainability, resilience, value creation and long-term success are all at stake.
Merely meeting the needs of today is unlikely to be sufficient. The exponential pace of change means preparing a foundation for tomorrow is paramount. An arms race is already underway as firms attempt to extract competitive advantage out of every facet of their operations. Much of this activity is being driven by the growing recognition of data as not only the lifeblood of investment organizations, but their single most valuable asset. It is not a matter of simply investing in technology. Systems play an important—but secondary—role in optimizing operations in this new era. Cultivating an internal data culture is likely to be just as important. As McKinsey points out, this means a focus on hiring and developing the right talent, including people who effectively bridge data analytics and daily operations.1
The optimal operating platform will support this culture in leveraging data for its greatest benefit. It needs to be sophisticated and flexible. It must be designed to meet information needs and facilitate decision-making. It should reflect deep, specialized expertise (Figure 1). Despite the formidable brainpower and talent to be found at most asset managers, it can be difficult to design, build and sustain such a platform without the assistance of key partners. With roots in long-term business strategy and supported by external expertise, a well-conceived operating platform should provide a solid springboard into the future.
Transitioning to a new platform can be wrenching, but there are many potential benefits. Greater efficiency is a welcome feature for firms facing margin pressure. Improved risk management is appealing to investors and intermediaries alike. Cost-effective regulatory compliance is an antidote to ever-increasing costs and complexity. The ability to innovate quickly and enter new markets or scale the business rapidly is invaluable to managers. The client experience can be enhanced in multiple ways, not least by providing greater customization and transparency. Perhaps most important, the ability to derive greater insight from data means firms have the advantage of speed, allowing them to adapt and change course more quickly than competing firms relying on established protocol and tradition. This applies to investment and business strategies alike.
These benefits will accrue only to firms that take the accelerating pace of change seriously and take proactive steps to future-proof their operating platform. As the industry becomes even more multifaceted, solutions more customized, and business issues more complex, finding the right operating partners to design and construct a platform will become crucial for any firm wishing to take the initiative in adapting to meet challenges head-on.