Thrive on market complexity with streamlined systems

In the search for alpha, many fund managers are diversifying their strategies and portfolios – putting pressure on fund administrators to support both traditional and alternative investment approaches. In the face of the resulting complexity, how can investment operations stay streamlined but ready for growth? Jason Baldesare, Director, Strategy and Solutions Management, Buy-Side Solutions and Post-Trade Derivatives, FIS writes.

The operational challenges of complex portfolios

In the search for alpha, many fund managers are turning to alternatives to diversify their portfolios. And as they broaden the scope of their investments to improve returns, there is pressure on fund administrators to develop more flexible operations that can support both traditional and alternative investment approaches. To remain competitive, they will now often be expected to administer portfolios holding less conventional investments, such as hedge funds, over-the-counter (OTC) derivatives, private equity and real estate – and offer a wide range of services to support these multi-asset strategies.

From the standpoint of investment operations, multi-asset or multi-strategy portfolios present new challenges for fund administrators. Historically, both private equity investments and OTC derivatives, for example, have been processed manually and administered in a completely different way to traditional portfolios of plain equities, bonds, futures and options that are traded electronically.

But with OTC trading in particular now moving to an electronic format, the situation is changing. Overall, fund servicers need technology and processes to handle the complex operational and compliance requirements of diversified portfolios, while at the same time lowering cost of ownership.

Seeing the bigger picture

For many firms, the answer to the multi-asset question has typically been to service different asset types with different systems – thereby adding to their technology footprint.

This piecemeal approach is understandable, as a more demanding investment market calls for increasingly specialist functionality. But it also introduces a conflict. On the one hand firms need best-of-breed components to manage new challenges. On the other they are pursuing higher levels of efficiency and transparency, which can be hard to achieve with disparate solutions from different vendors.

A fragmented technology environment for fund administration makes it more difficult for their clients, asset managers to report back to their investors – who really want to see a holistic picture of their portfolio, covering both liquid and illiquid investments. With a broader set of assets now finding their way into a far higher proportion of wrapper funds, it’s never been more important to manage multiple asset classes from a single platform – and gain an aggregated view of risk and performance.

What’s more, asset managers that invest in different types of assets are now less happy to employ a range of specialist administrators. And that makes the fully automated, multi-asset-class platform the new must-have solution for fund administrators, enabling them to service hedge funds, private equity, institutional and retail as a one-stop shop – and delivering common output with timeliness and accuracy.

Breaking down industry barriers

To support ongoing growth, fund administrators must be able to automate and streamline the processing of complex multi-asset investment portfolios and strategies – and, as much as possible, integrate the accounting solutions they use for different asset types.

But the comprehensive coverage of asset classes is only the start of what integrated technology can achieve. The ultimate objective should be to break down the barriers between industry verticals as much as possible – and ultimately to meet all your processing and reporting requirements through a single platform, including for new and complex derivatives instruments.

As a result, an institutional investor, for example, will be able to view data on its whole multi-asset portfolio, however complex, in real time – and mine it for business intelligence. While providing a comprehensive multi-asset accounting solution, a single platform for both liquid and illiquid assets also gives administrators the opportunity to enhance controls, workflow, reporting, audit and compliance.

By allowing core processing engines to communicate with one another more effectively, administrators can mirror the market trend to bring more asset classes together – but without adding operational complexities or unnecessary costs. And in today’s complex, converging investment environment, a powerful multi-asset-class platform is a valuable commodity in its own right.

Find out more

As a sponsor of this year’s FundForum International, FIS will be available throughout the event to discuss the fund industry’s operational challenges and how we can help. Meanwhile, read our latest research findings for top tips on preparing for growth – and the chance to benchmark your own growth readiness