This insight interview, was conducted in advance of the Fund Management Operations Summit to be held on the 20th November in London with Stacey Mullin Outhwaite, Chief Operations Officer, EMEA for BlackRock, the world's largest fund manager by assets.
What have been the most significant changes to the third-party fund management sector over the past three years, from an operational perspective?
Complexity and increased demand on resources: the increase in regulatory requirements really requires a lot of effort from operations teams - more complexity and more resources with an extremely low margin for error. On top of that, clients are also asking for new, innovative or more tailored products, e.g. tax efficient products, as well as more digitisation of their information/reports, which adds to complexity.
In parallel, asset management firms have seen fee compression – which puts more pressure on finding ways to increase efficiency
To adapt, operations teams have invested more heavily in technology to supplement processes, for example relying more on exceptions-based risk management
Does the growth in average number of funds per fund manager indicate a need for more automation of operational processes? What role will that leave for humans going forwards?
There will always be a need for human judgment in operational processes. Studies of Artificial Intelligence (AI) show that a combined approach - AI supplementing human judgment – gives better outcomes than either AI-only or human-only approaches
Our industry continues to grow more and more complex – we are most efficient when we have technology focussing on the routine processes and escalate to humans where judgement is needed. There is always innovation in products that needs to be explored by humans before it can be systematised.
What are the sizeable challenges of launching new funds in asset classes not previously exposed to?
From my COO perspective, the most important element in launching new types of funds is “knowing what you have”: the risk, the exposures, valuations, etc., and of course new asset classes require different technology and models to assess and track that data. We have to adapt our technology quickly in order to meet demands in new asset classes.
For example, in our technology division we have 'Aladdin'. When you have a system that encompasses the entire workflow – orders, trading, compliance, settlement, etc. – and you can see everything at once, the pressure is on to make sure you truly have all asset classes represented in the picture and that workflow. Our technology team are really dedicated to making sure Aladdin is staying on top of new product types.
What are the major operational considerations in seeking to operate and offer both illiquid and liquid fund offerings and what are the most significant technology and reporting challenges?
Illiquid fund offerings have their own unique challenges beyond modelling, risk management, technology and reporting challenges above, for example, valuation. We must have independent valuation of our illiquid assets. But for particularly complex illiquid investments, like renewable power, it takes deep expertise in the specific asset to value it well and often the true experts are conflicted. This can sometimes lead to a real challenge finding independent but accurate valuations.
Registration to the Fund Management Operations Summit on the 20th November at 200 Aldersgate, London, is open and available to register by clicking here. Only representatives of investment groups and regulatory bodies are able to register for free. Should you not represent an investment group, but wish to be part of this event, then get in touch with Noel Hillmann at noelhillmann@clearpathanalysis.com or call +44 (0) 207 688 8511 to discuss Summit sponsorship and exhibition opportunities.
