Introduction
Investment managers are acutely aware that reporting represents a fundamental element of client communications. The ability to provide informative, timely, accurate, and high-quality information to investors cannot be overstated. In this competitive landscape, reporting is not merely an administrative task but a critical touchpoint that can distinguish an investment management firm from its peers. Despite the importance of robust reporting mechanisms, numerous barriers prevent firms from improving their investment reporting processes. This analysis explores the key challenges investment managers encounter and offers insights into navigating these complexities.
Cost Considerations
One significant barrier is perceptions around the cost of enhancing investment reporting systems. These costs are at times seen as prohibitive. Several scenarios illustrate this challenge.
In one common instance, boutique or niche market firms that have never previously invested in reporting solutions often find themselves hesitant. These typically owner-managed businesses frequently engage in extensive discussions with vendors but ultimately decide to retain their manual processes.
Another scenario involves businesses that over-specify their project requirements. A firm might initially need a solution for a specific reporting workstream but then request additional functionalities to address performance or data management challenges. This inadvertent ‘mission creep’ can be underestimated or simply overlooked, leading to comparisons with projected costs across multiple workstreams when the original intention was to address a singular need.
A less frequent but notable scenario involves organisations with strict budgetary constraints, such as pension funds bound by governance initiatives that limit operational spending. In these cases, reporting must compete for resources within a tightly controlled budget alongside numerous other activities.
When evaluating costs, investment managers are advised to gather information from industry peers and consultants. Moreover, they should critically assess the in-house costs of managing the project without external vendor support. For such internally developed ’DIY’ solutions, an assessment of in-house expenditure should weigh all cost implications so that they become fit for comparison against vendor-based expenses. This assessment must include the (sometimes hidden) issue of key man risk – a reliance on specialised but limited internal tech resource.
A crucial question often overlooked by investment managers is: can the firm afford not to improve its investment reporting process? The risks of maintaining the status quo are multifaceted. Operational risks include potential data handling inefficiencies, reliance on manual processes, and key personnel dependencies. Financial risks encompass potential fines, penalties, and client compensation. Perhaps most significantly, there are reputational risks associated with reporting failures, which could substantially erode brand equity and other unforeseen consequences.
Firms frequently focus solely on licensing fees without considering the potential cost savings achievable through automation. A comprehensive approach requires understanding both immediate expenditure and long-term operational efficiency and process risk reduction gains.
This cost aspect is important but often incorrectly weighted. It can at times eclipse other important factors. This is ill-advised and much should be done to consider it alongside other key challenges.
Data Integration Challenges
The second barrier revolves around integrating data from external providers, including third-party administrators. Investment managers understandably seek assurance that a vendor can effectively handle their complex data environments, particularly given the multi-year commitment such partnerships entail.
The most effective method for addressing these concerns is a proof-of-concept (POC) exercise. This involves presenting the vendor with the most intricate data scenarios the firm currently manages. A successful POC requires clear objectives: demonstrating data handling capabilities, establishing template standards, verifying quality benchmarks, or confirming volume processing abilities.
Vendors may offer free POCs for specific functional areas, while more extensive assessments might necessitate full system implementation. A well-executed POC frequently establishes a lasting relationship between vendor and client, providing the latter with compelling facts to present to internal decision-makers.
Factbook can access data from unlimited, disparate sources, including external fund managers, market data vendors, TPAs and other third-party partners. The company then controls the manipulation and onward presentation of this data.
This contrasts with many other platforms that must go deep inside their code base just to accommodate an unusual or uncommon data source. The ability to leverage customised plug-ins is the key, thus retrieving external data without destabilising the rest of the code. The effective use of plug-ins can reduce the time involved in a reporting implementation by as much as 50%.
“Factbook provided best practice advice on consuming new data sources and on the capability of the system. They helped us to determine the optimum workflow process, working alongside the data management, performance, fund accounting and client reporting teams.”
Head of Performance, Client & Fund Reporting.
Global Asset Management Firm
Technical Capability Concerns
The third barrier centres on vendors’ technical capabilities. Investment managers often have exacting requirements, such as seamlessly integrating data from many disparate sources, supporting reporting across multiple jurisdictions and affiliate networks. A comprehensive and well-aimed POC can effectively address these concerns.
The recommended approach involves requesting three distinct approaches to deliverables: one considered complex, another simple, and a third occupying the ‘typical’ or intermediate space. A vendor’s ability to successfully navigate these scenarios provides reassurance about their technical prowess. These should feature prominently and clearly in your thought through POC requirements.
By way of example, where key concerns involve say, accessing and deploying data from your securities service provider that must be co-processed with internally sourced data, say from your internal performance or accounting functions, then these should be clearly stated and included in any POC. You should insist on seeing proofs that reflect your target outcomes as closely as possible.
Equally, if your capability concerns centre around meeting the exacting needs of different jurisdictions, or (say) supporting a distribution network, then these too can and should be stipulated. That applies to reporting output that must make adjustments at branding level, language level, presentational requirements to meet localised needs or all of the above.
Resistance to Change
Sometimes, investment reporting projects are abandoned due to organisational shifts. Changes in leadership, competing operational priorities, or budget constraints can halt progress to new or developing project initiatives.
Inertia often stems not from perceived vendor shortcomings but from the anticipated pain of system migration or process changes. Concerns about project success and potential personal repercussions can paralyse decision-making.
To ensure the smooth implementation of an external investment reporting solution, three key considerations emerge:
First, avoid attempting to replicate legacy processes or legacy workflows (“we have always done it that way…”) in new solutions. Instead, embrace market best practices and novel features; do not be afraid to challenge previously held views. Establishing a new Target Operating Model is fundamental to this process.
Second, recognise that no single solution fits all reporting requirements. Asset managers must be realistic about expectations, understanding that reporting encompasses diverse use cases and activities including regulatory reporting, fund factsheets, client reporting, and transactional documentation. However, do look for built-in flexibility delivered by a vendor with a collaborative outlook.
Third, secure organisation-wide collaboration. Identify stakeholders early, well before issuing requests for proposals. Many firms experience geographic divisions using disparate reporting tools, representing opportunities for process centralisation. A best of breed solution should be capable of supporting variability in markets and geographies.
Conclusion
Reviewing barriers to improved investment reporting reveals several critical insights. Organisations must look beyond financial costs alone and seriously contemplate automation benefits and status quo risks. Proof of concept exercises provide reassurance and expedite implementation. Consulting peers and industry experts offers realistic cost perspectives.
The right solution enables asset managers to streamline client onboarding, service existing clients, deliver customised experiences, mitigate operational risks, and adapt to market changes while ensuring compliance. A strong correlation exists between technological systems and operational efficiency.
Conversely, legacy software systems frequently prove expensive to maintain, challenging to adapt, and difficult to replace. Years of custom development create significant organisational dependencies, often preventing adoption of market proven, superior technological alternatives.
“Our objective is to offer our clients the highest possible level of service,” explains Henry Spurrier at Amber River. “As the investment management part of our business grows at pace, we wanted to provide clients with even more transparency, presenting information in a comprehensive, accurate and timely fashion that is easily digestible and yet still personal.
Selecting the right client reporting partner to help us achieve this was therefore imperative. After a highly successful demonstration, in which Factbook proved the speed, agility and flexibility of their system, we are confident that they are the correct partner.”
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About Factbook
Factbook is an early pioneer in reporting systems. We specialise in delivering reporting solutions which focus on information presentation, analytics and fund data management to the investment management industry.
Through our core product offering, Factbook Solutions Suite™, we solve complex reporting challenges for the world’s leading investment management houses. This is achieved by combining our extensive sector knowledge with solutions that are innovative and agile whilst removing the need for compromise from our users.
Our clients include firms managing multiple hundreds of billions of dollars globally, encompassing respected organisations like Jupiter Asset Management, Momentum Investments, Stanlib, Amber River, LGPS Central and others.