Feb 02, 2022

We’ve been sifting through the data and preliminary findings from our 2021 Operations Staffing and Organization benchmarking survey and, when we analyzed the results, one of them jumped out at us.

We were pleasantly surprised to find that a significantly high percentage of respondents predict that their operations budgets will increase by Q4 2023. In fact, about 80% of firms indicate that their operations budgets will increase in the next 24 months, with more than 45% saying their budget will grow anywhere from 10% to 50%.

For many years (at least since the global financial crisis of 2008), operations teams in the investment management industry have been forced to do more with less ─ dealing with constrained budgets and operating under lean conditions. Yet ops teams have adapted, managing to accept the responsibilities associated with supporting complex business processes and providing excellent services. They should be applauded for doing more with less and managing against tight budgets for more than a decade during what have been challenging market conditions.

During that period, the scope of ops support widened in many ways, with new and increasingly complex instruments in portfolios necessitating more sophisticated data and custom requirements for teams to understand, manage, and execute on. More varied client and account types and regional support considerations came into play. And regulatory influences grew heavy as well, placing additional burden on ops teams to improve their procedures and controls, extend training, and demonstrate compliance with internal and external audits. And teams had to accomplish all of these additional tasks while remaining extremely budget-conscious.

Moreover, competitive market conditions resulted in clients becoming more choosy and savvy, taxing operations even further to support custom client requirements. Our data-driven world has increased expectations for more frequent and ad hoc access to information. And through it all, operations teams have performed a balancing act of funding the right mix of human talent, data, technology, and services and getting the job done with tight, oftentimes flat, or even declining budgets.

How Did Ops Teams Manage?

Investing in advancing technology and outsourcing enabled investment managers to meet their growing day-to-day needs and control risks while tightly managing their budgets year over year. To do so, ops teams took the following steps:

  • Implemented technical solutions that replaced paper-based, manually intensive, fragile solutions.
  • Adopted specialized solutions for complex instruments like alternatives, OTC derivatives, and bank loans.
  • Leveraged outsourcing and managed services providers to augment staff, extend expertise, offset risk, and to provide coverage, whether in a full or partial capacity.
  • Learned to do more with fewer people and adjusted procedures to revolve around exception-based models.

Where Are They Today?

In today’s environment, investment managers have choices about how best to support their operations. They actively consider the best combinations of human capital, technology solutions, and service options, making careful decisions about where to invest in best-of-breed solutions versus all-in-one systems and where to leverage the expertise and dependable services of a service provider and partner. Advances in integration technology, coupled with the maturity of specialized products and services, keeps this an active effort for operations management teams. There is not a “set it and forget it” mentality ─ and operations management teams have effectively and strategically made their choices to solve current business needs while staying mindful of the future.

So, given that operations teams have “made do” and risen to the challenges over the last decade or so, it is both surprising and exciting to learn that budget pressures are abating. Financial help is on the way for operations! The preliminary findings of Cutter’s 2021 Operations Staffing and Organization benchmarking survey forecasts that budgetary pressures will diminish at most firms. About 80% of firms indicate that their operations budgets will actually increase in the next 24 months (by Q4 2023), and more than 45% say it will increase by 10% to 50%.

How Will They Use Additional Funding?

If the pendulum swings and budgets are fulfilled with an increase as anticipated, where will ops teams apply the extra funding? Remember … ops teams are not kids in a candy store. They are savvy planners who have researched and strategized and then pulled the right levers to survive and even excel during difficult times. A few firms commented that increased budgets are earmarked for rising data costs, which is not surprising. But most firms indicate that increased budgets will go toward adding staff and continued investment in technology.

  • Is your firm forecasting an ops budget increase?
  • Where will your extra budget dollars go?
  • How are you managing demand for funding?

As we dig deeper into the findings of our benchmarking survey results, we look forward to sharing them with you and providing insights in Q1 2022.

Join in the conversation in the Cutter Community to share ideas and see what other firms have planned or reach out to us at [email protected]ates.com.