There are many reasons for an asset management company to undertake an operational assessment. The most common are that firms grow assets under management, change or add the types of assets traded, expand the range of strategies and/or funds it manages and have a more complex investor base with different requirements for shareholders. All these changes mean systems and processes set up at the beginning of the firm’s life cycle may no longer be fit for purpose.

FinServ Consulting leverages all its experience and expertise gained in working with similar funds or businesses to help support its clients in this exercise. This has given the company unique insights into how assessments can be conducted and what asset management firms will gain from the process.

Identifying Problem Areas

The first step in the process is to look at and analyze an investment firm’s full operations and processes to identify inefficiencies that are holding back the growth of the firm. This process can also reassure investors that the firm is doing everything it can to use its resources effectively while at the same time having processes and controls in place to ensure that operations from front to back office are running smoothly and are fit for the present as well as the future.

The assessments can highlight a variety of areas where firms may want to make changes. This strategic initiative looks at how technology is being used, whether service providers deliver in the most effective way and if teams are structured for optimal efficiency.  The review can expose bottlenecks, suggest areas where best practice can be implemented and show how to streamline a business. Ultimately, a target operating model is defined and presented with a path to get there.

Although operational assessments are routinely conducted by many firms, lately there has been an increase in requests for these evaluations. This is due to several reasons. For example, because of the pandemic, some technology investment has been delayed however, firms have only grown in complexity. Inefficiencies caused by manual processes may be exacerbated as the fund grows its assets under management (AUM).

Many firms still use Excel or have many operations done manually when there are more eloquent automated solutions available. The frequency of this can be a direct result of the infrastructure set up at the beginning of a firm’s life cycle. As it grows, those processes may no longer be adequate, particularly if it has experienced changes in the types of asset classes traded, the size and volume of trades or other factors. These factors mean existing infrastructure is less optimal. The systems used at the start of a business may not be scalable or the most efficient as it grows.

Identifying Where Efficiencies Can Be Made

Once the parameters of the operational assessment are established, everyone involved in a specific process in a fund are interviewed using a set list of questions. This helps identify ways to streamline work – such as trading workflows.

For instance, portfolio managers do not always have all the information they need at their fingertips. There may be a lot of manual work before a trading decision is made. Interviews with portfolio managers, traders, operations, finance, and anyone from the technology side involved in these processes are interviewed to identify areas where there may be ways to update work streams or plan for future expansion.

A list of predetermined questions also gives the conversations a focus and helps identify areas of inefficiency that can be improved.

The resulting list of projects – ways a firm can change processes, technology and even people to be more efficient – can be daunting. These projects can be small or large, complex or simple, easy to implement or difficult.

While it is always up to the firm to decide which projects it wants to tackle in the short or long term, some like to focus on quick wins that may be relatively inexpensive while others put together a program aimed at gradual transformation of processes and procedures.

FinServ Consulting has developed a project impact/effort matrix that helps identify which actions will have the most impact on the business while also judging the difficulty or complexity in implementing these compared with those that are much easier to do but have less overall effect on the business.

This assessment is a snapshot, giving the firm an overview of inefficiencies and what the impact of fixing them will be. Quick wins could include things like reorganization of the folder directory, discontinuing daily reports or giving Bloomberg access to more people. Key improvements that may take longer to implement might include hiring more people, like a tax director, implementing new systems like a portfolio management system (PMS) or a data warehouse.

The addition of new strategies and funds may also put a strain on existing infrastructure. Likewise, the introduction of managed accounts, funds of one or onshore/offshore structures to accommodate a wider range of investors will necessitate different procedures and processes.

Operational due diligence by investors can also identify red flag areas where improvements need to be made.

A Path Forward: Recommendations

At the end of the operational assessment there are usually five to six strategic areas where change is recommended. These range from relatively inexpensive projects to more long-term changes.

The assessment gives a timeline and costs to help firms make decisions on what to tackle first and what it may want to consider in the longer term. It is the firm’s decision what to do next and how.

By using FinServ for this exercise, unlike other consultants, the job does not end at giving the firm recommendations. FinServ is available to help implement all the suggestions, provide assistance in choosing the right technologies, service providers, processes and procedures to ready the firm for present operations as well as for the future.

While the operational assessment does not look at whether and how a firm might go into another business, like loan servicing, the process does look at operations where targeted improvements will make jobs more efficient and scalable. Some growing firms worry that every time they add a new fund or strategy, they will need to hire more persons, adding to the costs and making it difficult to scale the business. For them, outsourcing options and third parties that can assist them and make more staff unnecessary may be better options than adding to the employee list.

Assessments are also made on third party providers, like fund administrators. By looking closely at what a fund administrator provides, they could request more services and gauge whether the amount of money the administrator is charging is close to the costs for similar businesses. The assessments are holistic, looking at all the processes of the entire firm.

Whether the need for an operational assessment is necessitated by operational due diligence by investors, a more complex investor base, firm growth or just a health check after a few years of operations, the process is geared to help tighten processes and procedures, streamline controls, and get the firm to the desired future state where it is capable of being more efficient and making more informed decisions. A fund’s infrastructure should never dictate what trading strategies are permissible or impede a business decision.

Even firms that believe they are relatively straight forward as they only do a small number of investments or trades may be challenged by the complexity of regulatory filings, the different types of data needed for a variety of purposes and a complex investor base.

Conclusion

FinServ Consulting, with years of experience working with a wide variety of asset managers, brings its knowledge and expertise to the operational assessment process – and does not leave the client with a list of “to-dos”. It helps in the implementation of the suggestions to create a firm fit for purpose now and in the future.

To learn more about FinServ Consulting’s services, please contact us at info@finservconsulting.com or (646) 603-3799.