Limina’s co-founder Kristoffer Fürst chatted with Carl-Fredrik Svensson to discuss operations. Carl-Fredrik is a former investment operations manager who worked up to the head of operations. He subsequently co-founded Daymi, a tool for operation teams and operational leaders. This article takes you through the main takeaways from the discussion, which you can also listen to below:
Interview with investment operations manager Carl-Fredrik Svensson about processes, risks and success metrics of investment management operations.
Why Investment Operations is complex
In Carl-Fredrik’s role as head of operations, his team of 40 people was servicing 250 funds. To understand all the processes, they initiated a project to map them all out. They ended up with 70 pages of excellent flowcharts and saw some opportunities to streamline now that Carl-Fredrik and his team could see all processes.
The document was also a solid basis for the operational due diligence of the investment managers they serviced. But such a document was going to be outdated shortly. And it wasn’t helpful for day-to-day work, just for follow-up and training.
In the day-to-day work, calendars were still full of various alarms and reminders. When a deadline was missed, the response was the same old “add more duality” checks. And if someone didn’t know how a part of a process worked, colleagues were relied upon because that flowchart was already outdated. This wasn’t optimal operational risk management.
Daymi takes a bottom-up approach to solving these problems. They give the operation managers at the investment firm the tools they need. I like to describe Daymi as a task management system, where tasks are organised as part of processes rather than standalone on-off tasks. Those processes are then recurring as required.
The processes will always be current, so the system becomes the evidence needed in operational due diligence reviews. Furthermore, management can aggregate the data to analytics and understand what is happening at all times, reducing operational risk.
Why automation of processes isn’t always best or even possible
At Limina, we believe in so-called exception-based workflows. Put succinctly, this means letting systems, such as our Investment Management Software, deal with issue identification so that you can focus on issue resolution.
To use an analogy with a car. To have the car check the oil level automatically is “issue identification”. There is no need to manually open the hood and check the oil with the oil stick; it’s easy to automate this check and for the car to notify you if the oil level is too low. In this case, the car identified an exception and alerted you.
The complete automation would be for the car to drive away, buy oil and fill itself up to the right level. This level of automation is probably not worth the effort.
The same goes for some investment operations processes. Many of these processes are also hybrid, with some steps that lend themselves naturally to automation and others that don’t. So essentially, the best process is a human-computer hybrid, which is already happening within most asset management firms; we just don’t think about it.
One final note on automation: investment strategies, regulation and asset classes constantly evolve. If things had stayed the same for ten years, much more would be automated. But the industry is evolving, and automation initiatives are always playing catchup.
If you want to dig into this topic more, we have an article that explores why asset management process automation is challenging.
Ways to reduce the number of processes
Beyond automation, another area to streamline operations is reducing the number and complexity of processes. Here are a couple of ways you can achieve this:
- Adopt holistic workflows, for example, with an integrated investment management solution
- Adopt a system with data quality controls built into it to increase investment data trust and lower operational risk
- Choose a live extract Investment Book of Record (IBOR) as the centre of your investment data.
To learn more on each respective topic, follow the links above.
Measuring the success of ops teams
In the interview, Carl-Fredrik says:
- “At the end of the day, it’s all about people and a solid team.”
- “Empower each investment management operations analyst to solve the problems he or she faces.”
- “You need to know what happens before and after each process.”
Yes, operations is about people, and people need to be motivated. According to Daymi, very few firms are even measuring success in the first place and those that do typically focus on the percentage or number of issues.
The process failure rate can be as low as 0.001%. For example, one client of Daymi has 4000 daily processes, and they can go several months without a single failure. The focus is, however, still on failures. Carl-Fredrik recommends flipping this to a positive measure: what % of processes succeed? In this case, 99.999%, which is an astoundingly high number! Well done, ops team!
With proper tools, empowering leadership, and the right metrics - the operation team can be viewed as the rockstars they really are!