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The “Lite” Side of Disruption for Fund Administration
February 16, 2017
Technology disruption is a hot and headline-grabbing topic for the asset management industry. Many larger firms have set up innovation labs to stay ahead of the curve and prepare for the opportunities, or threats, that blockchain, robotics, artificial intelligence and other fintech developments may pose. But if the robots are coming, what does the future hold behind the scenes for investment operations?
The answer, for the moment at least, is probably less radical than some may fear. In fact, I’d argue that, quietly and unassumingly, the robots have already arrived to make their mark on fund administration. And rather than inciting a front-to-back-office revolution, they are helping to fine-tune workflows that already exist but could benefit from greater efficiency, via even higher levels of automation.
Think of these first-generation disruptors as a “lite” version of robotics and artificial intelligence – and simply the next stage in the commoditization of the standard fund administration processes. Automation has already brought the back office a long way: from a manual environment, running separate reports from investment ledger to general ledger, to a single, paperless operational unit where exception management tools have replaced the traditional checking of printed pages. More recently, workflow and business process management (BPM) tools have allowed firms to automate and introduce discipline and control across the end-to-end fund administration life cycle.
Such innovations have created opportunities for fund administrators to increase efficiency and drive down costs. For larger players, comprehensive automation has also opened the doors to offering outsourced services and creating offshore centers of excellence for business process outsourcing. But to date, even the most highly automated environment has had its break points: gaps that only a human being can fill, whether by reacting to an exception or tying up a management report. Robotics, implemented effectively, can join the dots in between by machine-learning how to manage such events – without human intervention.
The first and obvious candidates for this kind of treatment are the passive index tracker funds that are currently attracting healthy inflows of investment. In theory, with straightforward rules for equities processing, humans shouldn’t need to touch these funds when it comes to calculating their net asset value.
Clearly, it’s up to human intelligence, and strong partnerships between business and technology teams, to make all of this happen. But with work already well underway, it’s only a matter of time before this roboticized vision of fund administration becomes a working, commoditized reality – less disruptive revolution than logical evolution. So, fear not: for now, the robots may not dramatically change the face of fund administration, but they will help to make it a whole lot more efficient.