Overview
Our client is an ASX-listed investment management firm operating two core businesses, a fiduciary funds management division and an APRA-regulated life division.
One of its growing investment boutiques trades in complex derivatives and bonds. There is increasing regulatory change driving different workflows and outcomes with uncleared and cleared over-the-counter positions. Today, the boutique is serviced by the client's internal investment operations team and platform, which performs all middle-office, fund administration, and back-office functions for the entire group. The internal platform utilizes SimCorp Dimension at the core, supplemented by a suite of services from Markit IHS and others to support derivatives settlement, trade reporting, collateral management, pricing, etc.
The company engaged Cutter Associates to perform an overall health check of the current bond and derivatives operating support model to determine whether there is a more efficient and effective operating model it could move to. This review included an assessment of the firm's operating model across organization, process, data, and technology.
Cutter Solution
Cutter reviewed the client's existing processes and interviewed investment operations, technology, and the investment boutique's business representatives to assess the current state and identify key operating model process improvements for the future.
Using the insights from this discovery, supplemented with insights and perspectives relative to practices of leading suitable peers, Cutter determined that overall, the client's investment operations function and supporting systems were fit for purpose. however, the boutique's relative value investment strategy and associated trading practices were posing increasing operational challenges. We also identified operational inefficiencies specifically attributable to existing integration limitations between the boutique's front-office order management system and the Dimension platform.
Cutter leveraged domain knowledge and industry best practices and worked with the client and its investment boutique teams to review possible alternatives and approaches. We collaboratively developed a set of target-state process improvements encompassing the front to back office. Key recommendations included:
- Engaging vendor specialist resources to address "quick win" operational process improvements and maximize the use of the latest Dimension operational workflow best practices capabilities and functionality.
- Introducing an enhanced order management solution in line with industry standards and peer best practices.
- Investigating potential back-office services' selective sourcing opportunities to address changing needs.
Cutter's report provided a clear assessment of the current maturity level of the investment operational capabilities against best practices and leading suitable peers, and the steps to maintain a "managed plus" level of operational maturity.
The client utilized the report to assist with internal project prioritization and to support the business case for continued investment in the existing platform in order to maintain pace with the rate of market and regulatory change around uncleared and cleared over-the-counter complex derivative instruments.
Cutter prioritized process improvement initiatives based upon the client's ability to provide the greatest benefit to remove and/or reduce the current-state issues.
As the initiatives are implemented, both the investment boutique and the client's investment operations teams should benefit from process efficiency gains around trade execution, trade support, investment reference data management, and derivatives lifecycle management.