Given the prevalence of technology in fund operations today, it’s hard to believe that in the not-too-distant past, a fund administrator’s work product ended up in cardboard boxes stuffed with paper documents, shipped off to a secure storage facility, to be retrieved only in an emergency.
That is how SS&C Managing Director Kevin Tynan characterized fund administration in his early days in the business. Kevin was speaking on a panel on “Mitigating Hidden Operational Risks in Legacy Operations” at the Managed Fund Association’s recent MFA West conference in Los Angeles. He set the stage by recounting what reconciliation used to look like—a labor-intensive, manual process, fraught with the risk of errors. Fellow panelist Jane Goodman, a Partner in EY’s Wealth and Asset Management practice, recalled how manual reconciliation was the norm as recently as 10 years ago, which posed particular challenges for auditors. In those days, they might have tested a sample for details within the data provided by in-house accountants or administrators. In contrast, today’s analytics technology enables testing of the full suite of journal entries, which provides greater value to both the auditors and the client.
Empyrean Capital Partners CFO Peter Bergren spoke to the evolution of operations technology from in-house systems to third-party providers. He recalled that his prior firm developed much of the technology supporting operations in-house, which limited its flexibility to scale and adapt to changing business needs. A firm of Empyrean’s size, however, did not have the resources to sustain ongoing development and had largely migrated to third-party applications and cloud delivery by the time he started working there.
Without question, the panel agreed investment operations have come a long way in a short time. Automation has raised the bar substantially for efficiency, accuracy, and speed. Yet operational risks still persist in many firms’ legacy platforms. Inherent risk is present anytime data is subject to manual manipulation, Jane pointed out. Moreover, she said, firms are looking to automation to overcome the risks of the past, but new risks—for example, cyber threats—keep coming. Kevin pointed to the phenomenon of process and technology “drift,” in our "Six Key Steps to Combat Process and Technology Drift Within a Services Firm" whitepaper, in a natural degradation in efficiency that occurs when firms fail to adapt their systems to change. Firms need to review their systems holistically and regularly to identify weak points and areas for process improvement.
So how can new technologies make a difference in mitigating operational risks? Kevin cited intelligent technologies such as machine learning, in which machines can be trained to perform many routine processes, eliminating human error. Natural language processing (NLP) is another example, which enables systems to read and extract data from PDFs. Intelligent automation is changing the roles of operations teams, too. Freed from routine processes and manual tabulations, staff can focus on processing and resolving exceptions in real-time.
The disruptions of the last two years have also strengthened the case for operational outsourcing as a way to offload risk, Peter pointed out. Confronted with key-person risk and a talent shortage exacerbated by the “great resignation,” he suggested firms should look to third-party providers who can do the work more efficiently and deliver a better product.
Speaking for fund managers, Peter hoped to see a comprehensive, front-to-back fund operations platform become reality. The panel also saw a growing role for technology in compliance, giving firms robust surveillance capabilities that substantially reduce their regulatory risks. Meanwhile, Kevin concluded fund administrators must be able to satisfy their clients’ hunger for high-quality data, which enables them to analyze and manage their business in ways that simply weren’t possible in the old spreadsheet and cardboard box days.
SS&C’s appearance at MFA West coincided with the launch of our new fund administration platform, SS&C GoCentral, a unified, AI-powered platform that addresses many of the risk issues that the panel discussed. SS&C GoCentral represents a generational leap in the modernization of fund administration. Contact us to learn more about it.
Written by Rob Stone
Global Co-Head of Sales