Fund Services Guide to Less Frustration and Better Results: Real OpEx Case Studies

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Fund servicers are constantly being tasked to maximize revenues and to efficiently run their organizations.  After decades of working alongside fund servicers to improve their operational effectiveness, we have identified commonly faced pain points and best practice solutions to improve service capabilities, productivity, minimize risk, lower costs, and build revenues and scalability.

Fund Services Guide

Applying Lean Six Sigma or Operational Excellence (OpEx) principles in a customized and strategic manner has proven to yield the most effective results.

In this article, we demonstrate these frequently occurring operational challenges and proven solutions using real life case studies that we have encountered throughout our work. In most instances, applying Lean Six Sigma or Operational Excellence (OpEx) principles in a customized and strategic manner has proven to yield the most effective results.

If you are a CIO, COO, a Fund or an Asset Manager, or provider of Middle and Back Office services, you will see that many fund servicers experience similar operational challenges (e.g. Cash Availability, Trading, Corporate Actions, and Pricing).  Firms have used proven OpEx approaches to successfully overcome those problems and convert their functions into revenue generating contributors.

We hope you will glean helpful insights through the story and real-life examples provided below.

Dan, the Chief Operating Officer of the Dug Out Funds Corporation, woke up with a visceral twisting in his guts.  When he saw the results of last week’s performance in all three of his key shops in funds, investments, and financial services before he left work yesterday, he knew today was going to be one of those days.

Sure enough, upon entering his office, the message light was blinking on his desk phone, and there were 17 text messages on his company cell phone he hadn’t dared take home last night.  After all, it was their 10th wedding anniversary.   Three minutes later, Barbara (his top trouble shooter) came breathlessly into his office and told him the Crab Shell CFO just finished reading her the riot act.  She explained there was an error in trading yesterday that led to a duplicate transaction and portfolio valuation error.  “If you don’t call him and give him some satisfaction in the next 30 minutes, he says we can kiss his account good-bye.”

Great, thought Dan, There goes my entire morning.

After thinking about it for a few seconds, Dan winced.  Crab Shell was a top-ten client and a favorite of the company CEO – they had gone to Harvard together.  He looked, and sure enough, three of the text messages were from the CEO, each progressively more hysterical than the last, all impatiently awaiting his reply.

Nuts.  So much for that bonus I’m due for next week, he thought.  Dan wondered, “What can be done to get at the root causes of these issues and get these recurring issues off my back?”  Then he had a flash of inspiration: “Maybe we should be looking at leveraging that OpEx and Lean Six Sigma stuff!”

If you have ever had a day or month that was anything like Dan is experiencing and you feel his pain, here are some compelling real stories where adopting the best practices embodied in Operational Excellence and Lean Six Sigma saved the day.  Relieving the pain can make the agony of change seem pretty appealing as an alternative.

The following case studies from high impact areas illustrate real situations faced frequently in the industry:

Case Study 1: Cash Availability

Client – A global Investment manager dealing with mutual funds and institutional clients.  The back office was outsourced to a service provider.

Summary of the Issue – Cash availability for investing was consistently delayed.

Risk – Investment manager risked over- or under-investing in its funds, significantly affecting returns.

Analysis / Findings – The team performed an in-depth assessment of the cash process to complete a value stream map of all the steps involved.  They identified various manual steps in compiling cash balances from different sources that were leading to a delay in cash availability.  The team also weeded out many redundant steps from the process without affecting the output.

Resolution / Results – The team established a feed for cash balances from different sources into one platform to automate the manual steps and improve the efficiency of process.  This drastically improved the cash availability by three hours with no impact on quality, helping the investment manager maximize returns.

Case Study 2: Trading

Client – A global investment manager dealing with hedge funds.  The middle and back offices were maintained in-house for the client.

Summary of the Issue – Duplicate trades were being booked across the trading desks.

Risk – Investment Manager risked redemption of investor funds because of incorrect trade accounting and valuations.

Analysis / Findings – The team performed an in-depth analysis of the complete trading process from front office to back office.  They discovered the front office was not canceling the old trades before placing new trades with slightly different parameters in the order entry system.  Because of the manual nature of reconciliation process, such trades were slipping past the middle- and back-office processes.  The trading system was not equipped with necessary controls to capture and report such duplicate trades.

Resolution / Results – The trading system was enhanced with the necessary controls by building in the capability to compare all executed and pending trades with new trades being placed at the order entry stage.  This helped the trading desk automatically capture all duplicate trades, leading to improved performance and investor confidence.

Case Study 3: Corporate Actions

Client – A global service provider performing accounting, custody, cash management, and fund accounting services to different types of institutional clients.

Summary of the Issue – Corporate actions were being booked incorrectly across multiple asset classes.

Risk – Clients risked redemption of investor funds because of the high probability of incorrect valuations, reporting, and Net Asset Value (NAV).  The service provider risked losing business and market reputation.

Analysis / Findings – Team performed an in-depth analysis of the corporate actions process, from capturing external messages to processing instructions.  They discovered the corporate actions system was not researching and verifying the action details against different sources.  The system was not equipped with necessary functionality to verify such details.

Resolution / Results – The corporate action system for capturing external messages was enhanced with a built-in tactical tool using Application Programming Interface (API) with Bloomberg to confirm the action details before its ex-date.  This helped the service provider correctly process corporate actions, reducing the risk of inconsistencies in valuations, reporting, and NAV calculations.

Case Study 4: Pricing

Client – A global service provider performing accounting, custody, cash management, and fund accounting services to different types of institutional clients.

Summary of the Issue – Incorrect securities pricing was being used across various asset classes.

Risk – Clients risked redemption of investor funds because of the high probability of incorrect valuations and Net Asset Value (NAV).  The service provider risked losing business and market reputation.

Analysis / Findings – Team performed an in-depth analysis of the securities pricing process, from gathering the prices from brokers to calculating the final value of portfolios.  They discovered the manual nature of the process for capturing the securities prices from different brokers was the root cause for incorrect prices.

Resolution / Results – The team automated the pricing process by building a platform to capture the pricing feeds from different modes of communication through brokers.  This change reduced opportunities for incorrectly capturing securities prices across all the asset classes, reducing the risk of inconsistencies in valuations and NAV calculations.

To be sure, nothing is ever as easy and “cookie cutter” as these case studies might suggest.  For every firm, its customers, the idiosyncrasies of the technologies owned/used, and markets served all conspire to create unique circumstances and barriers to change.  Successfully getting at the root causes and killing off those recurring issues requires a well-planned process and the right mix of internal and external expertise to address the four phases of transformation organizations and processes, large and small.  Inside transformation initiatives, robust methods are used to drive continuous improvement at the tactical level.  The following two graphics illustrate the phases of Organizational Transformation in figure 1 and the Cycle of Continuous Improvement in figure 2.

 

Additional Reading

Operationalize Your Strategic Plan Using Lean Six Sigma

High Performing Teams = Driving Success in Lean

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