Institutional asset allocators have long scrutinized the operational infrastructures of the fund managers they entrust with their investments, conducting rigorous due diligence to ensure risks are minimized. However, these allocators would benefit from applying the same level of scrutiny to their internal operations. They often miss out on this opportunity to improve their risk management, despite the increasing complexity of institutional portfolios, with a significant shift into alternative investments such as private equity, real assets, and hedge funds. While these alternatives offer the potential for higher returns, they also bring unique challenges, including nuanced accounting standards and the need to process vast amounts of data from various sources.
Operational risks within institutional infrastructures remain a critical issue. The lack of advanced systems and processes to aggregate and analyze data from multiple funds and managers leaves allocators vulnerable to incomplete or inaccurate insights, directly affecting investment decisions and reporting accuracy. Moreover, reliance on outdated, manual processes can increase the total cost of asset ownership, diminishing overall returns.
As fund managers have demonstrated that robust operational performance is vital to attracting institutional capital, allocators are beginning to recognize the importance of strengthening their own systems and controls. By addressing these gaps, they can optimize performance, reduce risk, and unlock the full potential of their increasingly diversified portfolios.
The first step to addressing gaps in your systems and controls is to recognize those gaps. By prioritizing operational due diligence, investing in operational infrastructure, enhancing staff training, and implementing regular monitoring and reviews as well as external oversight, you will find the areas in which tightening up a process will have the biggest impact. After identifying the processes to streamline, many asset allocators may choose to outsource some or all of those areas. Outsourcing is a cost-effective way to access knowledge and technology infrastructure needed to:
- Augment in-house expertise
- Gain agility
- Optimize operational efficiency
- Leverage advanced technology
Choosing a service provider that can demonstrate deep knowledge and experience across the full range of fund and investment types, and continually invests in the advanced technologies underpinning the infrastructure, is key to optimizing operational efficiency. To learn more, read our "Institutional Grade Operations" whitepaper.
