Asset servicing post the pandemic: Five evolutionary changes managers must be ready for after COVID-19
By Jay Peller, Citco Fund Services (USA) Inc
Published: 20 September 2021
The pandemic altered everything we did. The way we lived our lives, the way we interacted and the way we worked were all forced to change as the world experienced a once in a lifetime event that few people have ever been through.
The pandemic has also altered investment markets in many ways, including what types of assets managers are seeking to buy, how they securely access them, and how the entire infrastructure behind their operations functions remotely.
While some may assume that areas like fund administration will return to a pre-pandemic state over time, particularly after the success of vaccination programmes globally, a far more likely outcome is that we will see many of the changes instigated to help cope during COVID-19 remain in place.
Many of the solutions and stop-gaps introduced to keep funds running during the pandemic, have highlighted inefficiencies within established operating models.
Having shown how much can be achieved via a new way of working, and the benefits it can bring to businesses, we now expect a shift to take place which sees these emerging trends become the norm over time.
For fund managers, this has clear implications for everything from data management to going paperless, and much of the focal point will be on how they engage with asset servicers. The good news is there are a lot of positives to take from the changes instigated during the pandemic. Below we highlight five of the key areas where this evolution is likely to occur.
In this new environment, many funds will need to move the initial subscription and capital commitment process into the digital space – completely removing paper from the process while simultaneously improving the quality of the information supplied by investors.
The digitisation of IR means managers will be able to gauge investor sentiment with live usage reporting during the capital raising process. By embracing digital onboarding, they can have visibility on which potential investors are engaging with fund offering materials, as well as seeing where investors stand in the multi-phased subscription process.
Digitisation can also help managers score their portfolios against environmental, social and governance (ESG) metrics, for example, and there are various tools either available or in development that can help with this process.
Data is becoming increasingly important for many industries, and across the world of funds, it is paramount.
Collating it is one challenge, but increasingly the new frontier is in how that data is used. Managers will need data management tools to help them make sense of their data, as well as that provided by fund administrators and other parties.
Data management platforms are one solution that we expect will see increasing demand from fund managers to tackle the mountains of data being harvested. Platforms can provide better transparency, unearthing efficiencies and driving real business value through actionable data.
With the increasing use of cloud technology, we expect those platforms which are already operating in the cloud will be at the forefront of this trend.
Centralisation of services
The demands on managers to deliver returns in a world where returns are challenged means they need to dedicate as much time as possible to focus on their portfolios and spend less time on administrative duties.
Outsourcing is the obvious solution, but one issue with this is having to deal with multiple providers for different services. We expect this will drive managers to increasingly turn to service providers who can offer it all under one roof.
This is likely to be particularly pertinent when it comes to areas such as middle-office services, where it increasingly makes sense to have treasury, collateral and cash management carried out by one provider who then has full oversight of managers’ cash positions, for example. Our expectation is one provider, one tool, and this simplification for businesses could be one of the biggest growth areas in fund administration going forward.
Never far from the agenda, security is nonetheless continuing to rise in importance in this era of increased connectivity.
Ensuring security of data is absolutely critical. The rise in online trading requires more security options underpinning it, such as dual factor authentication, watermarked documents, and digital certificates embedded in documents that are tamper-proof once signed.
The fund administration sector is seeing increased interest from managers when it comes to portal usage in their interaction with investors. Data storage is also a hot topic – data needs to be securely acquired and stored, where managers can communicate electronically with their prospects, as well as existing investors.
Cutting edge technology that enables the above to happen seamlessly is already in high demand, and that will almost certainly continue.
As managers increase diversification across asset classes in search of returns - moving into hybrid strategies and accessing a wider range of investment vehicles - the complexity of investment administration will continue to grow.
There will be a need for continued innovation, with managers adopting emerging technology faster than ever, whether that be through proprietary offerings or via third-party partnerships.
The role of fund administration has already evolved significantly of course, from simply providing month-end NAV calculations to offering truly front-to-back office and tailored outsourced solutions.
But the challenge continues. There is growing demand, for example, for access to private markets by institutional investors, while demand for fund finance is another popular area that is equally complex.
ESG and being able to report on it clearly across factors such as ecological impacts, employee engagement, and business ethics have become increasingly vital, as non-financial indicators of the health of businesses and investments globally take centre stage amid the climate crisis.
In addition to the above, it is also critical for managers to find a partner that understands how day-to-day transactions are impacting their portfolios, whether that be complex loan activity or enhanced agency services for syndicated and complex transactions.
Alongside experienced and knowledgeable staff, software and systems that can tackle this – and the other factors above – are going to be crucial to streamline managers’ businesses, enabling their success.