How Fund Houses Can Deliver Immediate Productivity Gains by Enhancing Their Back-Office Operations
Linnovate is a Business Reporter client.
For asset managers, real-time data is king. It enables them to make well-informed, on-the-spot decisions for investors, and to act with speed in a world that increasingly rewards fast and agile thinking.
But while many mutual fund houses have made significant progress in digitalizing frontline client service and experience elements and enhancing the quality of data at that end, the middle and back offices have not received anything close to that amount of attention and investment.
This is surprising, given that these areas of a financial institution are just as important as the front line. Data from the back and middle offices underpins decisions made in the front office, and if the investment in their digital capabilities could match that of frontline operations, the whole ecosystem would be made more efficient.
Instead, however, they still rely largely on legacy systems. This means asset managers, who specialize in making fast and confident determinations on behalf of clients, are still burdened with the need to perform mundane tasks, such as manual calculations and investor reporting through spreadsheets—tasks that digital technologies could be taking care of.
Because their workload includes these tasks, asset managers are unable to be as agile as they could be. This has consequences, hampering not only their ability to respond quickly to market changes, but also the long-term profitability of their fund houses.
The problem with outsourcing operations
Fund houses have traditionally outsourced their back- and middle-office operations to a fund administrator, thereby allowing them to focus their internal operations on frontline elements. But, says Henry Lin, CEO of Linnovate Partners, the expense of outsourcing is only one problem, and he points out that the practice can also significantly affect the quality of the data that fund houses receive.
“Once a fund house outsources a fund administrator, they no longer get firsthand access to all the investment data,” Lin says. “Full transparency in fund administration requires tracking the data you want to share, and that requires having a defined process in place for collecting information on the performance of portfolio companies. If you don’t have that data, you can’t quickly produce the valuable information and actionable insights your limited partners need.”
Compounding this is the fact that third-party fund administrators have also been slow to adopt digital tools, meaning their data processing time is slower than it could be. “Most of the time, the fund administrator and fund house will do a lot of calculations and reporting in spreadsheets—a lot of manual processes. So, it’s not efficient enough,” Lin says.
Another option traditionally used by fund houses for their back- and middle-office operations is to bring in third-party operating systems. But again, says Lin, this can be problematic: Not only is there the cost of buying a system and paying people to implement it, but people also have to be hired to operate it.
The process is expensive and disjointed, and it leaves an important component of company operations in the hands of external players, thereby placing asset managers at a distance from data that is vital to their decision-making abilities.
Bypassing the traditional options
Linnovate Partners is a premium asset servicing firm that leverages new digital technologies to address the persistent problems financial institutions face with long-neglected parts of their operations.
Its proprietary SMP Net asset servicing platform streamlines and simplifies back- and middle-office operations, guaranteeing seamless transmission of encrypted data using blockchain. This allows clients to optimize their investment cycles, operational processes and periodic reporting.
Linnovate’s offering doesn’t involve the traditional choice that fund houses have had to make between either outsourcing solutions or implementing in-house technologies, says Lin. “Our solution is combined: combining professional services with technology solutions for the alternative asset industry,” he says. “So, we’re providing you with an SaaS-based platform, [meaning that] you’re not just receiving the data from us—you also will be able to access all the official data we have provided online that helps to streamline your communications with investors.”
That, he says, allows clients to “slice and dice all this data without any third-party interference.”
Minimizing operating costs and driving profitability
The fact that clients now demand greater visibility of investment insights than ever before isn’t news to financial institutions, nor is the imperative that challenges around efficiency and agility need to be attended to. But with so much focus now on frontline services, these other areas have been neglected.
Linnovate’s platform offers users real-time personalized investment data and enables them to instantly generate advanced financial analyses across a range of metrics. By bringing numerous disparate silos of data together, everything relevant to back- and middle-office operations can be made available on a single workbench, while simultaneously connecting general partners, limited partners and other stakeholders.
By optimizing around 80% of traditional fund administration processes, the Linnovate platform enables asset managers to leave mundane tasks to the technology, and instead focus on critical decision-making for clients. Not only does Linnovate boost an asset manager’s efficiency, it also minimizes a client firm’s operational costs and drives profitability.
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This article originally appeared in Business Reporter.
Image: iStock id1363104923
