Back-office operations in fund administration take a technological leap forward

Michael Galvin, Global Product Manager, Linedata

From intelligent automation to predictive data analytics, technology is helping fund administrators and asset management firms increase efficiency, reduce operational risk, control costs, and achieve scalability, while adapting to new workplace dynamics.

Asset management back-office technology has undergone significant change in recent years. Technology ecosystems are increasingly automated, increasingly requiring human intervention if and when issues arise, rather than detailed and manual processing and oversight checks. Data analytics are providing new levels of operational and business insight. The ascension of generative AI promises to further disrupt long-established practices.

As margins continue to tighten amid ongoing economic concerns and sector consolidation, firms can no longer automatically increase headcount when they add new customers or funds. Administrators that succeed will win at the expense of firms that fail to embrace automation and analytics.

In this model, economies of scale mean the greatest benefits will generally accrue to the largest organisations. However, fund administration is an area where niche players can distinguish themselves with specialist expertise and exceptional customer service. For them, technology provides leverage to punch above their weight amidst larger organisations.

As fund managers create increasingly complex products from a broader range of asset classes, this complexity is impacting the back office. In response, we are seeing a shift to ever-greater automation, particularly of oversight tasks, and exception-based processing. This lets operational teams schedule reviews to run autonomously and only intervene when problems arise.

The bigger the organisation – and the greater its growth ambitions – the more important this ability to manage by exception. In parallel, back-office digitalisation creates an audit trail of every check, including remediation, and confirmation that every action was correctly executed and reviewed.

Our clients can do this using Linedata Optima, a web-based operational control and oversight platform that automates tasks and checks involving fund accounting and fund administration applications. With Optima, a team administering 200 funds can, for example, configure the system to run 150 rules-based checks four times hourly throughout the day. This equates to over 1 million digitally stamped checks daily – a staggering sum that would be impossible manually.

Gathering insight: Streamlining data collection and finding valuable metrics

Fund administration generates huge amounts of data, which provides a treasure trove for deriving valuable insights as well as monetizable services. Efficiency gains can be garnered through the use of operational KPIs, such as STP rates and time spent striking NAVs and resolving breaks.

Data analytics services also provide a key differentiator for TPAs when attracting new clients, adding an extra edge in a very competitive market where competing solely on price is a race to the bottom.

Changing investment patterns – including the rise of young, digital-native retail investors – means asset managers need better access to back-office data, whether this sits in their in-house systems or with their fund administrator. Access to this data will enable the development of better investment products, as well as banking app-style access to investment information expected by today’s clients.

Predictive analytics: A window into future trends and providing a competitive edge

Predictive analytics identifies historical patterns that aren’t obvious to the human eye and applies machine learning to inform expectations about the future. This helps operations managers and teams save costs, make dynamic process improvements, and add competitive advantage.

But while data scientists exist in their thousands, they need operational expertise to understand relevant data before they can frame the AI/ML models to derive actionable insights. For us, that means coupling 25 years of experience providing fund accounting, transfer agency, and data-related software and services with the application of analytics and machine learning to address operational processes and problems and create better outcomes for our clients.

Examples include tools to assess NAV production progress throughout the day based on the number of remaining exceptions at a particular time. Another efficiency gain involves automatically assigning work to individual team members based on whether they have carried out similar tasks in the past and how effectively they have done so. Workload reallocation takes place at the individual or team level without bias and without diverting the manager’s attention from more important matters.

Talent retention and the changing workforce

Technology can also alleviate the industry problem of talent retention and the associated loss of skills. When experienced workers leave, their knowledge can be retained in the form of automated workflows, which provide a step-by-step process guide for issue resolution. New team members no longer need training on every problem as the system intuitively helps them resolve problems.

Digitalisation and managing by exception also fundamentally alter the skillsets required for new workforce entrants in fund administration. Certainly, fewer junior people are needed to manually input data. But this also puts a premium on the analytical skills possessed by

digital natives whose abilities will help them achieve quality results faster and with far less manual intervention.

However, the adoption of new technologies should make the middle and back office one of the more dynamic areas of our industry. As a result, it may become easier to attract and retain a new cohort of talented and enthusiastic employees keen to demonstrate their knowledge and skills.

The ‘great resignation’ of decades-serving operations professionals has highlighted the risk posed by the loss of institutional knowledge.

Michael Galvin is Global Product Manager for Linedata’s fund accounting platforms. With 25 years in the industry, he has led the development of core applications, surround technology, and process management solutions for fund administration and asset management firms. This article is excerpted from the recent Linedata white paper “Back-Office Operations in Fund Administration Take a Technological Leap Forward”.

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