"Asset managers today face a fundamental and indisputable fact: the world they are analyzing in order to make and execute investment decisions is increasingly complex and rich in data."
An asset manager’s middle office is the engine on which the business depends for visibility and decision making; less visible it may be, but a stall in this area has the potential to lead to major breakdowns elsewhere.
Nevertheless, some asset managers are missing an opportunity to enhance the effectiveness of their middle offices – and to ensure that when something does go wrong, the impact is limited and managed.
An important area is to cut out the inflexibility that dogs some middle office workflows. As data flows in from thousands of portfolios from potentially multiple back office sources, a flexible workflow is one that ensures performance and attribution calculations proceed smoothly, even where inaccuracies or omissions threaten disruption. Such a workflow flags up a problem in the area affected, offers fast and effective strategies for solving the issue, and enables unaffected areas to continue processing without interruption.
Without such flexibility, the middle office workflow threatens to be a source of potentially damaging operational risk. When performance data is slow to reach other functions, including risk, analytics and front-line management, the business is at a competitive disadvantage. In more serious cases, such delays can even lead to compliance failures and regulatory sanction.
In practice, the secret to delivering flexibility is twofold. First, the workflow needs to have a logically-ordered cycle of processes that monitor data readiness, validate the information, configure it for the calculations required and flag up exceptions. Second, these processes need to be automated, limiting the requirement for manual interventions or workarounds even in cases where issues have been identified.
When the workflow is able to proceed as planned, it should enable the middle office to manage all portfolios on a single platform, and to organize these portfolios in the most logical groups according to the investment process, data controls and calculation settings required. A visual and intuitive process maximizes transparency and usability, helping users to pinpoint what actions are needed and guiding them naturally through the tasks.
Equally, when problems are identified, a flexible workflow isn’t thrown off track. It provides users with the ability to identify the source of the problem, as well as an audit trail that shows up changes previously made to the data, when they were made and by whom. It also allows users to revert to previous versions of the data, where users have made changes that they now wish to undo, and to re-import data quickly where this proves necessary.
Moreover, while the issue is being resolved, flexible workflows don’t come to a grinding halt. Having isolated the source of a particular problem, it should be possible to continue with calculations and analysis within portfolios that are not affected. Meanwhile, once the data problem in the affected area is resolved, the system needs to have sufficient capacity and bandwidth to reprocess calculations quickly; the work required for portfolios caught up in the problem to catch up is then accelerated.
Asset managers that get the mechanics of a flexible workflow right in the middle office will find that their daily processes are streamlined and rapid. By reducing the time spent on data corrections and recalculations, and cutting out the need for manual workarounds, the middle office is able to deliver performance measurement data to the rest of the business without delay. It also frees up its own resources to focus on data analytics, an area that sets apart middle office teams that add the most value.
Over time, asset managers with intelligent workflows will perform more strongly than those frustrated and distracted by day-to-day data management difficulties. But it will also be important to ensure the middle office has sufficient headroom to go on enabling this outperformance in the future. This means building in capacity for the system to support growth.
At its simplest, this may simply mean ensuring the middle office has sufficient bandwidth to increase the quantity and variety of data with which it has to deal – that it is scalable, in other words. But it will also be important to ensure that it is straightforward to add new functionality and features as they are required by users – to future proof the system.
In both these contexts, a cloud-based solution offers clear advantages, enabling the middle office to increase capacity quickly and simply, while also providing a means to automatically update the system so that new technologies can be deployed very rapidly.
The end goal is a flexible workflow that minimizes operational risk both today and in the future, supporting efficiency and functionality through automation, transparency and intuitive usability. Get that right and the middle office engine will provide even greater power to the rest of the asset management business.
- Inflexible workflows are a source of operational risk
- Flexible workflows flag up data problems to users, enable the rapid resolution of these problems and allow unaffected areas to continue without interruption
- Flexible workflows have headroom for future business growth and increasing sophistication