4 tips to maintain an optimal operating model in a complex world

The operating model of asset managers is under tremendous pressure. In today’s business environment, they require a model that is global, cost efficient, scalable, and above all extremely agile to accommodate possible regulatory tsunamis, new asset classes, new quantitative approaches, evolving client reporting, and much more. The list goes on, creating a serious headache for COOs.

Before going further, what do I mean when I talk about an operating model?

What is an operating model?

 Operating models usually include four pillars:

1. Organization – including governance and processes etc.
2. People – including culture and profiles, etc.
3. Technology – including functional and technical architecture
4. Data – including sourcing strategy, enterprise wide governance and quality framework, etc.

Operating model optimization is today at the forefront of executive committees agendas as it is increasingly perceived as a business development enabler rather than a pure operational and cost efficiency issue.

Below are a few examples of operating model changes that create business opportunities:

• Adopting a global enterprise IT platform will significantly increase opportunities for Fund Management synergies across locations and asset classes, as well as simplifying enterprise risk management.
• Big data technology will provide unprecedented opportunities to develop a large correlation matrix to find new sources of alpha.
• High-frequency trading technology will be leveraged to create new systematic asset management styles.
• Real-time technical integration between social media, websites, transfer agents, marketing and CRM systems will trigger a quantum leap in sales effectiveness.
• Robots powered by artificial intelligence will not only make fund accounting automatization reach new highs, but will also progressively replace Fund Managers themselves performing their most repeatable tasks in a much faster and error-free fashion.

As we can see from these examples, the evolution of the asset management operating model has only just begun. How can firms maintain (and improve) an optimal operating model? Below are four areas to focus on.

Tip #1: Data is the “back-bone” of your operating model, so create a role of “Chief Data Officer”

A good data strategy and governance is probably the most crucial aspect of a successful operating model. In the asset management industry, we tend to see the creation of a dedicated role to tackle this challenge: Chief Data Officer. His or her objective is to get an holistic and consistent view of data sourcing, control, and utilization across the entire organization, as well as external stakeholders. Asset managers have such complex data structures to take account of, including market data provider, fund accounting, middle office, dealing desk, market counterparties, client reporting, etc. So the challenge with data is that it is “travelling” across many different players; it is produced, controlled, consumed by different functions and for different purposes. A proper data governance strategy is key to manage risks and quality issues. 

Tip #2: Get the most out of your global presence and find the optimal organizational structure between global, regional and local

Large global players have a great competitive advantage. They can leverage large teams to create economies of scale and drive down operational costs. They can also use their presence in different time zone to improve quality of service, and reduce operational risk.  For example, “follow-the-sun” or “pass-the-book” models can significantly improve trade processing KPIs, accelerate instrument static data refresh, or enable “Early NAV” capabilities.

However, designing an optimal global operating model is not an easy exercise, as each bit of the value chain needs to be carefully analyzed, but the prize in terms of operational efficiency will be significant.

Large successful global asset managers usually use three different geographical levels, including:

• Global: One global team that cover needs of all geographies, e.g. enterprise risk oversight
• Regional: Three teams for each main time Zone (US, Europe, Asia), e.g. client service teams
• Local: One team per country, e.g. fund accounting

A combination of these three levels is often used to find the optimal organization. Table 1 is an illustrative view of each geographical level weight in global operating model.

From an IT platform strategy, we see three different approaches: Regional Hub/Spoke, “80:20” or Enterprise. Table 2 depicts the main pros and cons of each approach.  

From an IT platform strategy, we see three different approaches: Regional Hub/Spoke, “80:20” or Enterprise. Table 2 depicts the main pros and cons of each approach.  

Tip #3: Finding the right balance between maintaining a robust IT foundation and keeping a high level of agility.

Maintaining a robust “State of the Art” IT platform is absolutely key for several reasons. First of all, it is the best way to keep operational costs under control whilst mitigating operational risks. Secondly, it is more of a critical aspect that institutional investors are carefully investigating when selecting an asset manager. Nevertheless, maintaining such a stable core platform should not be to the detriment of your IT teams’ agility. Rapid application development and agile methodologies in general should be part of IT departments’ value proposition to the business. Fund Managers need fast developments to test ideas so IT departments should position themselves as a partner and a business enabler. This way, all satellite software and macros can be quickly but professionally developed and properly maintained. Over time, those satellites can be re-developed within the core platform to limit the number of applications.

Ideally, IT departments should strike the optimal balance between “speed” and “robustness”, it is a critical aspect to maintain an optimal operating model over time.

Tip #4: Creating a “360° Control Tower” to watch regulatory tsunamis, disruptions and opportunities in advance.

COOs must spend as much time looking at what’s going on outside their organization as what’s going on inside. The pace of change is accelerating in an exponential way, so creating a dedicated function or team to screen and analyze the outside world is becoming a must-have. Traditionally, strategy, marketing or public affairs teams are oriented toward the external world, nevertheless the “operational angle” is rarely properly analyzed. New regulations are often managed in “silos” one after the other. Looking at all regulations in a holistic way is crucial to make the right decisions in terms of operating model changes.

Typically, instrument referential is subject to multiple and sometimes inconsistent change requests. A transversal approach across all new regulation is a good way to develop an optimal change strategy. Disruptive technologies or models must also be identified as early as possible to anticipate what could have a real impact on the operating model. Big data, machine learning, robo advisors, Blockchain, and direct sales technology platforms are just some examples of technology or operational disruptions that can drastically change the game. COOs must have their eyes wide open to take advantage of those changes and make decisive moves for their organization.

Summing up

Appointing a Chief Data Officer, leveraging global presence to achieve operational excellence, striking optimal balance between “speed” and “robustness” for IT, Creating a “360° Control Tower” to anticipate disruptions should be key areas of focus for COOs to maintain an optimal Operating Model in this complex and fast moving world.

About the author

Luc is the Chief Executive Officer of Alpha Financial Markets Consulting in mainland Europe. Before joining Alpha, Luc spent 5 years with UBS in Paris and was head of change management. Prior to that, Luc spent 6 years with Solving International, a management consultancy, specialising in asset and wealth management in Europe.