IVP Newsletter - Half Yearly, 2020

The asset management industry has found itself under pressure to quickly adapt and transform due to the coronavirus pandemic. Not only are managers experiencing unprecedented market volatility and uncertainty, which has ultimately taken a toll on AUM growth and retention, but they are also facing added strain on their internal operations as a result of the all-remote work environment.

As we move deeper into the second half of 2020 and brace for the new normal, traditional and alternative managers must continue to accelerate their digital transformation by embracing digital-first outsourcing providers, native cloud platforms and data management core competencies in order to continue operating efficiently in this new environment.

To further this point, findings from IVP’s 2020 Mindmeld survey indicate that 45% of asset managers plan to move to a digital-first model post-COVID and will leverage the crisis as an opportunity to start implementing the shift.

Funds looking to achieve success and emerge stronger in a post-pandemic world will have to conquer three key challenges such as firm-wide operational cost reduction, the broadening of their alternatives and custom solution offerings, and driving tangible insights and innovation through native cloud technology. By implementing a strategic path forward for the remainder of 2020 and beyond, asset managers can continue to propel themselves further into the execution phase of their digital transformation.

Seeing as though the playing field has somewhat leveled in this new environment, fund managers of all types and sizes are now facing a series of unique hurdles across areas such as portfolio and regulatory reporting, performance and operational robustness as they learn to embrace this new digital reality of both work and life.

According to the aforementioned Mindmeld survey, 77% of asset managers indicated that they lack full transparency into the day-to-day operations that are outsourced to their service providers.

In order to succeed, managers will need to continue their critical evaluation of ways to reduce firm-wide costs, which may lead them down two separate paths. The first is a continued focus on M&A and consolidation to reduce and disperse operational costs, which may prove difficult as financing has halted and in-person meetings to close deals are forbidden. The second and arguably more strategic approach is a focus on hyperoutsourcing and establishment of a digital-first asset management model.

By harnessing the flexible and scalable approach of digital-first outsourcing providers, managers will alleviate a number of their operational headaches while simultaneously enabling a scalable and flexible approach that leads to visible efficiencies. From here, they can propel themselves into the next phase of evolution by setting a sustainable, long-term operating model transformation in motion.

As managers move to reduce operational cost and increase efficiency through hyperoutsourcing, they will also have to keep one foot on the innovation accelerator. This growth will be primarily focused on dissemination into new investment areas, such as private markets, and developing custom solution capabilities to meet both client and market demands that will help funds differentiate against their competition.

Private credit funds now have a unique opportunity as they are experiencing an uptick in activity from the economic disruption caused by COVID-19. According to J.P. Morgan Asset Management’s Head of Private Credit Meg McClellan, “borrowers suddenly have temporary financing needs as their traditional sources of capital have dried up,” which has opened a new door for many private credit funds to continue deploying cash despite continuous market volatility.^[1] In addition, a recent survey conducted by Proskauer finds that “many funds are seeking out new lending opportunities, with a particular focus on the healthcare, business services and software and technology industries.”^[2]

As private markets continue to prove to be one area of potential opportunity for asset managers in this new environment, another area of growing interest is custom solutions. Firms will increasingly need to focus on custom portfolios and experiences, which will continue to grow in popularity due to their “private feel,” enabling funds to further differentiate from their competitors to drive AUM growth. However, before funds begin their advancement into customized offerings, they must first overcome a number of operational data challenges.

According to IVP’s 2020 Mindmeld survey, 53% of funds surveyed said that consistency of data was their biggest challenge, rising to 90% in funds focused on private assets (private credit, real estate and real assets). In addition, 100% of funds surveyed indicated that they do not have a 360-degree view of deals within their fund due to the fact that they lack a single golden source to watch deal terms, structure, covenants, financials, KPIs, compliance testing results, etc.

The catalyst for growth in these capabilities stems directly from advancements in technology, proving that data management and analytics are crucial to success, and that individual customization can only be achieved in a cost-effective manner with technology’s application. Managers turning to custom solutions and new markets, such as private credit, will need to reevaluate their infrastructure and technology to handle this influx of new data and analytics on a routine basis.

It is no argument that one of the biggest developments in the past decade for financial entities has been the implementation of cloud technology. Empowering a new way to store, utilize and digest data across their funds, managers are readily adopting public cloud offerings in their ongoing search for a more cost-effective way to derive competitive insights in their fight to drive AUM efficiently. As the pandemic has only further underscored the need for continued team collaboration and firm-wide accessibility of data, managers will be forced to shift many of their core processes and solutions to the cloud.

Furthermore, findings from the IVP Mindmeld survey also point to continued investments in data capabilities as 38% of respondents said that they are planning to invest in data science and insights once they reach the Enterprise Data Repository stage, and 35% said they would devote capital to foundational platforms in order to accelerate their journey towards some of the more advanced stages. Not only do we see this trend following on an accelerated path than originally anticipated, but managers will continue to actively build out capabilities through their expansion of massive data infrastructures.

Due to this increasing popularity and recent demand for remote efficiency, we will begin to see the convergence of native cloud technology and design as asset managers establish data lakes, further driving deeper analytics and insights. This innovation and shift will provide managers with a cost-effective way to experiment with their data as well as bolster front-office offerings, all within our new remote work environment. From here, innovation will propel forward as the industry continues to face new pressures and challenges as a result of our ever-evolving market dynamic. In fact, 80% of our new client base in 2019 opted to host on one of the public cloud substrates (i.e. AWS or Azure) in order to leverage the large number of add-on services available on tap, and we only see this trend accelerating.

Thus far, 2020 has proved to be crucial for asset managers as a multitude of external pressures began to mount, causing the incremental shift towards automation and hyperoutsourcing in an effort to transform.

When asked about their firm’s future for remote work in IVP’s 2020 Mindmeld survey, a little over half of respondents (55%) claimed that their organization remains uncertain about its plan to move part of its staff to a permanent remote work model once the pandemic ends, whereas 23% said they will be making the shift. The ongoing uncertainty of the global pandemic has marked the point of no return as the industry is now being forced to fully execute on its transformation in order to survive this new environment. As a result, funds will need to continue to invest in accelerating their digital transformation by embracing digital-first outsourcing providers, native cloud platforms and data management core competencies in order to continue operating efficiently.

^[1] Christine Idzelis, “Pandemic Turmoil Is Driving Borrowers to Private Credit, JPMorgan Says,” Institutional Investor, April 20, 2020.

^[2] Selin Bucak, “Private debt funds seek new deals as pandemic pressures lenders,” Financial News, April 9, 2020.

• Integrated true pre-trade compliance, which warns traders of potential compliance limits and restrictions that might be getting breached in real time while allocating the order or trade.
• Reject the allocation from being saved in cases of breaches or otherwise warn the trader but still allow them to save the allocations and follow up with an embedded approval workflow with the compliance team.

• Obtain nested allocations across multiple levels. For instance, trades can now be allocated first at the fund/portfolio level and then each fund can be further sub-allocated to the relevant legal entities, investors and custodians within that fund.
• Standard allocation rules are available at all levels of allocation.

• Create “What-if” scenarios by booking a set of hypothetical or “What-if” trades and analyzing the collective potential impact on the portfolio in terms of the following:
• “What-if” holdings and exposures
• Compliance breaches
• Forward-looking cash flows
• Forward-looking IRRs and multiples

• Track, monitor and maintain new loan issues firm-wide as well as analyst-specific watchlists for further analysis and due diligence.

• Providers users with the ability to optimally collapse positions that are boxed across different counterparties/strategies.

• A detailed position-level capital usage report that is created via long-short haircut rules and is configured across counterparties and different asset class types.

• Creates integrated mappings between operating accounts and corresponding margin/cash accounts for sending cash flow instructions to and from counterparties via the platform’s Email Communication module.

• Compares different parameters and automatically suggests moving positions across different counterparties.

• The SWIFT MT940 message type contains cash balance details corresponding to an account, including opening balance, end-of-day balance and the available cash balance.
• Additionally, this message also contains transaction-level details such as debits and credits, which occurred in that particular account. This information, coupled with the cash balance, gives a holistic idea about a day's activities with respect to an account.
• The application has upgraded to support a dashboard where the transaction details of each account are available.
• This dashboard reflects all transactions that happened within each account, which is useful for the users both as a dashboard to check the day-to-day activities and also as a month-end or quarterly check on the transaction activities.

• As per SWIFT SR 2020, financial institutions receiving MT103 are obligated to provide updates on the status of MT103s received within two business days.
• The platform provides support to update the MT103 receipt status to the gpi Tracker through automated MT199 SWIFT messages.

• Letter of Authorizations (LOAs) can be generated through the platform for manual, non-SWIFT fund transfer requests.
• For additional security, a password protection feature has been added within the LOAs that are sent out from the platform.

• As mandated by the SWIFT Bureau, SWIFT messages sent from the platform are encrypted through PGP encryption, which provides security through the use of strong public keys.

• Internal transactions involve the transfer of funds between two accounts owned by the same asset manager.
• The platform provides support for group transactions based on common features such as counterparty, pay date and currency to create a single wire netting for the amount across multiple transactions.
• Reduction in the number of SWIFT wires provides operational efficiency and a reduction in the cost associated with SWIFT payments.

• Reporting through legacy tools such as Tableau and Microsoft Excel has been long supported within the platform, but support for Power BI dashboards has now been introduced.
• Users can work with standard report templates and can also customize reports based on specific requirements.

• Monitor exceptions across datasets, funds and source systems in one place through an interactive dashboard.

• Track all datasets and their corresponding status in one place, whether they are fit for consumption or not.

• Correct data and maintain a full time-series audit of corrections.

• Create views out of existing datasets to perform rapid calculations, roll ups and transformations as needed.

• Track processes in detail and identify any inefficiencies within processes/schedules via the platform’s New Timeline screen.

• Integration with collaborative tools like Slack as well as IVP Security Master via the platform’s Security Master adapter.

• Built-in ability to perform complex reconciliations between datasets.

• Multiple SRM instances on the same database server, which reduces overall TCO.

• Management of exceptions generated by both manual and API updates.
• Efficient exception cleanup process to ensure streamlined exception management.

• Additional events added to the framework.
• Includes security/entity updates, attribute value changes, workflow approvals and drafts.
• Provides subscription to selective events.

• Seamlessly integrates with Polaris DWH, which enables security data to be segregated into fast-moving, slow-moving or static buckets.

• Provides real-time integration with the latest version of AdvisorWare.

• Improvements for data refreshes and APIs.

• Improved user experience based on customer feedback to improve the usability and design of the application.
• Bookmark pages/reports and quickly access frequent or previously visited pages.
• Intelligent filters, information-dense graphical landing dashboards and a bigger, more usable work area to improve the overall user experience.

• The platform is now integrated with react-based grids, offering much faster load times, increased usability and ability to handle bigger datasets more easily.
• The grids now also provide users with the ability to create Excel-like pivot views, offering unmatched analytics.

• Threshold-based disclosures such as SSR, 13G, 13D and TR-1 require outstanding issuance to calculate the proportion held by them, which the platform can now search for online.
• The platform can either collect the information from different websites over the internet or through Bloomberg.

• Auto-population functionality for forms such as ADV and SSR where information needs to be manually uploaded on the regulator’s website.
• Using Research Process Automation (RPA), the platform can use the client’s credentials to login to the regulator’s website and complete the form population process on the regulator’s portal, which can save users hours of time.

• With the addition of N-PORT to the larger regulatory filing suite, RICs can use the platform to ensure compliance.
• The platform can be automated to periodically source the firm’s positions, provide security and perform static extract to auto-populate and generate the N-PORT form.
• All validations and mandatory field errors are covered by the application for preemptive corrections, and the generated final XML can be used to file with the SEC.

• Seamless integration with pricing vendors to support multiple intraday price refreshes.
• Real-time connectivity with the downstream system posts a valid price as soon as it is available.
• Automation of prices received on daily emails, including parsing the PDF attachments.
• Daily intraday security and position refresh to ensure that the system is always updated with the securities that need to be priced.

• Users can now easily refresh the prices directly from their spreadsheets with the introduction of a “recompute” action.
• Loading prices for a historical date range (of more than one year) can now be processed quickly using the “historic upload” feature.

• Define budget at the legal entity level (fund or management company) for a fiscal year on a real-time basis.
• Flexibility to budget for known services across multiple fiscal years.
• Tag budget with vendors, service types (i.e. data fees, audit fees, research fees, etc.) and business groups (i.e. operations, technology, fundraising, human resources, etc.).

• Budget line items.
• Allocation of budget based on NAV, AUM, etc.

• Provides actual expenses against the approved budget.
• Includes views across various levels (i.e. fund, vendor, expense category or business group).

• Reporting of budget vs. actuals.
• Overage analysis at the entity level.

• Updates throughout the fiscal year for missed or additional items.
• Resets budgets for the entire fiscal year.

• Set up reconciliations in minutes with auto-suggested mappings, keys and attributes. It recognizes patterns on past user actions and predicts probable actions on breaks.

• Faster intraday refresh with delta load capabilities, summarizing the latest outstanding breaks and account balances.
• Built-in SWIFT support and OMS integrations.
• A single reconciliation can be configured across multiple counterparties and funds to ease and speed up configuration.

• Link multiple reconciliations to gain full visibility and understand the root cause of breaks.

• Spin off and work on “as of month-end” reconciliations in parallel with “as of daily” runs to avoid duplicate user actions.

• Directly post entries to the downstream system (i.e. Geneva, VPM, AIM, etc.) from the reconciliation break blotter to clear breaks.

• A state-of-the-art reconciliation process, leveraging Linux servers that expedite the entire process.

• Enhanced versions of the canned RSLs to ensure that all of the data is reconciled at the most granular level, which removes the need for reconciling all custom reports and ensures that the datasets in two separate versions match.

• New custom tagging functionality.
• Integrates directly with a fund's Entity Management tool and fetches entity attributes including issuer name, asset description and country of risk, which can then be used as tags for research notes.
• Intelligently applies auto-tagging to notes by internally maintaining a tag hierarchy.
• Users can search across their notes more effectively using the tags as filters.

• Using state-of-the-art Microsoft Excel add-ins, users can now seamlessly upload their internally maintained issuer/company-based financial models into a centralized database that can be made accessible to a larger audience in the fund using API calls, SQL views or Python libraries.

• Supports custom Excel functions, similar to the Bloomberg BDP functionality, through which analysts can query data straight into their Excel spreadsheets to create additional reporting and analytics.
• Prebuilt custom calculations, like LTM/YTD numbers, leverage ratios that can be easily configured directly into the module, helping analysts reduce the effort required in maintaining their reports and spreadsheets.

• Calculate stock price targets using various proprietary and publicly available methodologies.
• Track price targets and the corresponding margin of safety for every stock in the portfolio or idea stage.
• Portfolio managers can track when and what price targets were updated and be notified in cases where updates didn't happen for a particular threshold period.

Pension Fund Investment Technology: Why Now is the Time to Up Your Game.

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