Operational alpha and reconciliation solutions for growing asset managers

Asset managers around the world are competing for valued and sought-after investor capital and are striving to deliver alpha in a way that sets them apart from other firms. The quest for alpha traditionally has been associated with investment strategy and performance, but it is now increasingly understood and accepted that a similar concept also applies to operations. As a result, it is strategically imperative that firms design their middle and back-office operating models in a manner that is capable of delivering such operational alpha as part of the overall investment experience. This requires identifying and focusing on operational core competencies, with an understanding that improving operations and garnering efficiencies can be achieved by embracing and implementing a component outsourcing model, where certain aspects involved in the life of a trade should remain in-house, while other aspects should be completely outsourced. The process of determining which components to outsource will be a unique experience for each firm and will require each firm to examine all aspects or stages involved in the life of a trade. The focus of this paper is specifically on the reconciliation process and the importance of having a scalable reconciliation solution in place that can accommodate expansion and enable growth. Having a high-quality reconciliation process is considered paramount in the eyes of operations executives and investors alike, and should be considered essential to any comprehensive operations ecosystem. Consequently, emphasis should be placed on developing an institutional-quality reconciliation process that meets both internal and external needs. Internally, this needs to provide enhanced internal controls and improve overall risk management. Externally, the process needs to be embraced by existing and prospective investors, and must stand up well to rigorous due diligence examinations from institutional investors and consultants, which ultimately is integral to successfully fostering growth in assets under management.