Institutional asset allocators often keep a close eye on the operational frameworks of the fund managers they trust with their investments. This thorough due diligence ensures risks are kept to a minimum. However, they frequently overlook the value of applying the same level of scrutiny to their operations. This omission becomes significant, considering the growing complexity of institutional portfolios, especially as there’s a marked shift towards alternative investments like private equity, real assets, and hedge funds. While these alternatives promise higher returns, they’re not without their own set of challenges, including intricate accounting standards and the requirement to handle large volumes of data from diverse sources.
Operational risks within institutions’ infrastructures continue to pose significant issues. The absence of advanced systems and processes for aggregating and analyzing data from various funds and managers leaves allocators susceptible to incomplete or inaccurate insights, which directly impacts investment decisions and reporting precision. Additionally, relying on outdated, manual processes can inflate the overall cost of asset ownership, ultimately reducing returns.
As fund managers have shown the importance of solid operational performance in attracting institutional capital, allocators are slowly coming to appreciate the need to bolster their systems and controls. By closing these operational gaps, they can enhance performance, reduce risk, and fully capitalize on their increasingly varied portfolios.
The initial step in addressing these shortfalls is recognizing them. By placing a focus on operational due diligence and investing in infrastructure improvements, while also enhancing staff training and introducing consistent monitoring and reviews along with external oversight, allocators can pinpoint which processes need refinement. Once identified, many may opt to outsource certain operations. Outsourcing offers a cost-effective path to acquire the technological infrastructure and expertise needed to:
– Enhance in-house knowledge
– Improve agility
– Boost operational efficiency
– Utilize cutting-edge technology
Selecting a service provider with comprehensive knowledge and experience across a full spectrum of funds and investment types, and one that continually invests in advanced technologies, is crucial for optimizing operational efficiency. For further insights, check out our “Institutional Grade Operations” whitepaper.
