Corporate actions: From manual to automated

For asset managers, corporate actions are part of the package when it comes to investing in equities. But the sheer number that need to be processed can also slow a company down if the process isn’t streamlined. PGGM shares their story on how they went from an almost 100% manual process, to straight through processing (STP) rates that most firms would be proud of.

A SimCorp client since 2006, PGGM made 2016 the year to implement the Corporate Actions Manager, a relatively new module helping to automate the process of dealing with corporate actions – both simple and complex.

The project was led by Rene Kuil in the front office and Jeroen Blom in the back office. Here, they share their thoughts on how the project went, what they set out to achieve, and what benefits they have since experienced to their daily work in terms of dealing with corporate actions. Rene is a Senior Portfolio Manager, while Jeroen is a Senior Employee focusing on liquid assets, such as bonds and equities.

A very manual process

Previously, PGGM relied on a very manual, protracted, and slow system to execute their corporate action requirements. It involved web portals, loading of portfolio’s, print screen views put into emails, double checking data on custodian websites or a Bloomberg terminal, updating of Excel spreadsheets with this information, more emails, etc. All in all, an extremely cumbersome and inefficient process for both their front and back offices.

For the simpler corporate actions, this may have been acceptable, but for the more complex election choices such as dividend reinvestments, share-splits or M&A, then a new setup was needed. Especially as PGGM’s business expanded and the number of corporate actions grew. At the time of writing, PGGM manages over 20,000 asset lines.

Referring to the original workflow, Rene says that, It was a fairly risky process, someone could have lost an email, or an Excel spreadsheet could have been out of date, so we really needed to streamline the process and make sure we could get a proper overview.” Apart from when dealing with dividends, there was no straight through processing, and no automation to speak of. With PGGM dealing with over 11,000 corporate actions a year, then the added burden on front and back office personnel was huge.

Jeroen agrees, saying that, It was a very time-consuming effort for our back office including three steps; obtaining the data, recalculating based on our holdings, and then posting the actual transaction directly to the account or in case of multiple accounts, via static data and create transactions windows.”

Streamlining the process

There were a couple of key goals for improving the corporate action workflow at PGGM, including improving automation, data quality, and having the back office add more value to the process.

Automating workflows

In terms of automation, PGGM is striving for an 80:20 solution, whereby 80% of the workflow is automated, giving them time to focus on exception handling and complex cases (the remaining 20%).

According to Rene, their front office operations are already at 90% STP rate. But he notes that the final 10% includes very complex corporate actions which will almost always require a certain amount of manual effort, but for the vast majority, the system works really well. Rene notes that, If I had to guess, I would say we are 3-4 times faster now when dealing with corporate actions in the front office.”

What does the workflow look like today? There is no longer a need to go into the custodial websites and manually find the information, now with a basic search, and pre-defined settings, users can see all the corporate action information for one event, from their three custodians, and also take action. Neither is there a need to print screen views, and send them via email, or keep an Excel spreadsheet up-to-date. All information is gathered in the Corporate Actions Manager and the Corporate Actions Dashboard, where users can get a complete overview.

Basic choices such as dividend payments are made with just a few mouse clicks, whereby users can select cash or stock, taking just a few seconds. Previously, this required a lot of email traffic and analyzing print screen and manual processes in both the front office and back office.

Jeroen states that, If you look at more complicated corporate actions, they were previously 100% manual. With Corporate Actions Manager, there has been a significant increase in STP.” PGGM’s back office is seeing 30% STP rates at the moment, but soon aim to get up to 80% STP rate once they have fine-tuned and optimized their use of Corporate Actions Manager.

Rene says that, The increased automation makes better use of people’s time. Corporate action processing used to be very manual, but with the Corporate Actions Manager, an efficiency boost is achieved and more in depth analysis is possible.”

A central view of the data

Another important element was the need to keep an audit trail so they could go back if necessary and check why specific decisions were made. Previously, PGGM was using their data vendor or custodian to keep track of records, as well as the email trail between their front and back offices.

We now have our own database with all this information in the Corporate Actions Manager, meaning that we spend much less time having to capture the data, because that is all automated now – it’s in the database” explains Jeroen.

PGGM is a little unique in the sense that it deals with three custodians, so when it came to data, this used to require a lot of time to manually compare it. Now, PGGM is able to manage the quality of the custodian information. Jeroen says that, It’s much easier now to see the information coming in and actually work with the custodians to improve the data they provide. Corporate Actions Manager takes data from four sources and enables us to compare custodian quality and reach a higher level of quality.”

Rene agrees, saying that for the front office, the data quality is much better than previously and I think it’s a huge plus that everyone is looking at the same data, updated in real-time. It gives the team a much better overview knowing that we are looking at a golden record that we processed in a certain way.”

Previously, the front office could only see upcoming events for the coming 10 days. Now, they have a complete overview for the coming two months, meaning that they are ready to act when the event comes in. This complete overview of corporate actions has been really valuable to our front office. It means we have time to do the necessary research to make the right decision,” says Rene.

Adding more value from the back office

Prior to implementing the Corporate Actions Manager, the back office had two or three full time employees just doing data entry and processing corporate actions. We definitely have more time now. We have streamlined the process so much that we can now spend time on other things. We used to be a data entry team, but we are now becoming more of a data monitoring team,” explains Jeroen. PGGM’s back office continues to do the ‘scrubbing’ of the data themselves.

This change is significant. By having time to add value to the investment decision-making process, they can now support their front office in a way that they couldn’t previously

The alerts will be the next phase for the back office which will help them even further with adding value. Jeroen says that, Our hope with the alerts is that they notify us of exceptions, so that we can click through to them and manage those exceptions.” Thanks to the automation gains PGGM has made, their back office has reduced the time and effort required by more than 30% meaning that they have more time to spend on value-adding tasks.

Bringing the back and front office closer together

PGGM relies on a relatively ‘lean and mean’ setup. They have a back and front office, and nothing in between. Meaning that a lot of the investment decisions required from corporate actions lies within the front office.

In the front office, PGGM processes about 1000 corporate actions a year with choices, so that’s a lot. So yes, we are very involved in the process. While the back office initiated and lead the project, we also got heavily involved too,” says Rene. Corporate actions are one of those things that brings the front and back office closer together, hence the rise of the term ‘whole office’ as these teams work closer and closer together to squeeze out efficiencies in the investment value chain.

Thanks to the standard configuration used for this project, implementation took a few weeks, rather than months. Jeroen agrees, noting that standard configuration helped shorten the process significantly.”

Martin Bjørling-Poulsen, Senior Manager, Global Standards at SimCorp notes that, "The standard configuration for Corporate Action Manager is a good example where a standard can be used across clients. As the PGGM example illustrates, this is about reducing production time, reducing risk, and finally also reducing implementation costs."

Summing up on the project, Jeroen says, We set out to increase efficiency in our system and scalability. Both of which we have achieved. We are all happy with the work we have done to improve our daily workflows of corporate actions.”

About PGGM

PGGM is a pension fund service provider and manages the pensions for different pension funds, the affiliated employers and their employees. Currently, PGGM manages pension assets worth in excess of EUR 200.2 billion (December 2016).