Global Custodian Winter 2018 | Page 40

[ A D V E R T O R I A L ] Can old operating models cope with new technologies? Alternative investment managers are having to weigh up the costs of carrying out an overhaul of their internal technology to meet current regulatory and investor demands, or to outsource instead. W hen it comes to technology in financial services, nobody wants to face the ignominy of suffering a Kodak moment, namely getting left behind when all of those around you are aggressively digitalising and future-proofing their businesses. At the same time, very few chief financial officers and chief oper- ating officers will expressly endorse an expensive technology project which does not deliver immediate value. Innovation is therefore something of a balancing act. Representatives across the alternative investment space gathered for a special panel session in New York, hosted by FIS, to look at how operating models for alter- native fund managers are changing, how their fund administrators are responding, and where new technologies can help al- leviate the pressure points for both sides. Traditional fund houses are increas- ingly moving into alternative products, and the challenge many are facing is how to update their operating models. The technology that has underpinned their traditional investments cannot, for exam- ple, meet the complexity associated with private equity. In addition, the traditional outsourcing model is also under pressure to adapt. “The alternatives side is hyper complex; in certain cases, they are almost seven to 10 years behind the traditional side in terms of sophistication of the investor for things like dynamic reporting and operational due diligence,” said Dan Hou- 40 Global Custodian Winter 2018 lihan, head of asset servicing, Americas, and regional head of global fund services, Northern Trust. Correctly valuing the assets held in a real estate, private equity or infrastruc- ture portfolio is a more time-consuming and complex process than striking a NAV (net asset value) for a money market mutual fund. Furthermore, the client and regulatory reporting obligations for illiquid portfolios also diverge signifi- cantly from those of more retail-focused investment vehicles. The need to meet regulatory obligations and gain accurate NAV data is forcing a new search for efficiencies. “Operational efficiencies are a big driv- er: how can we do things faster, how can we close the books in one day versus two weeks, how can we get information to our partners so that they can use that infor- mation to look at deals in different ways,” explained Jason Donner, chief financial officer, Veritas Capital, a private equity “Technology is increasingly becoming a bigger part of the growth strategy and to take on some of those more mundane tasks so they can focus on value.” TONY CHUNG, HEAD OF ALTERNATIVE PRODUCT MANAGEMENT AND STRATEGY, FIS fund manager with $8.8 billion in assets under management. One way fund managers are looking to gain efficiencies is through technology. More and more are turning to technology vendors and demanding new data prod- ucts from their administrators to demon- strate transparency to both their investors and regulators. “Technology is increasingly becoming a bigger part of the growth strategy and to take on some of the more mundane tasks so they can focus on value,” said Tony Chung, head of alternative product man- agement and strategy, FIS. “As a solution provider, clients want to learn more about what we’re doing around the digital chan- nel, analytics, and cognitive services.” One strategic focus for alternative man- agers is how can they automate as much of their operating processes as they can, especially when it comes to regulatory re- porting, know-your-customer (KYC) and anti-money laundering (AML), as well as reconciliation and statement production. One solution, the panel highlighted, would be some sort of portal where fund