People. Data. Technology – these are the core components of operational alpha. To support your firm’s investment strategy – be it credit, debt, or long short equity – your operations team needs to be empowered with training, technology, and data to operate effectively. Equally investing in these areas ensures optimal performance in the middle and back-office. Neglecting any one area leads to increased burden and decreased efficiency.
To achieve operational alpha, a firm needs to have three distinct pillars in place, including the:
- Right team in place to support the strategy or asset class
- Knowledge and expertise to support the larger business goals
- Technology and data access to operate effectively
To answer these questions, let's delve deeper into each pillar.
People form the foundation of any business.
Investing in people is not solely about the number of employees but also about ensuring that they possess the necessary skillsets, including:
- Balancing your staff and training: Striking the right chord between staff levels and training is crucial. Being understaffed with highly trained employees can lead to stress, dissatisfaction, and high turnover rates. Conversely, having a large headcount but insufficient training can result in inefficiencies and inadequate use of technology and software.
- Relationship with Technology: Employees must be equipped to use the technology that supports your business effectively. Inefficiencies arise when employees don’t fully understand how to use systems and perform manual tasks outside the product.
- Importance of Data: Access to accurate and timely data is vital to your business. Your team plays a critical role in ensuring that data serves as the building block for the business, enabling informed decision-making and supporting operations across the organization. A competent team will also ensure streamlined data flow across the technology stack.
Data access is the lifeblood of the firm.
Investing in data flow is crucial, especially for an operations team. Inaccurate data and inefficient information flow result in significant time spent on reconciliations, data corrections, and error fixing. Inefficient data flow can have severe consequences for your investment strategy, impacting multiple aspects of the business, including:
- Performance Risk: When critical decisions are based on unreliable or inaccurate data, it can harm your overall performance.
- Reconciliation: Inefficient data flow often results in extensive reconciliation between different systems or sources of information. This time-consuming process can delay important tasks, reduce productivity, and hinder the efficiency of operations.
- Work Outside of Systems: When data flow is inadequate, employees may use manual workarounds to handle and process data. This introduces additional effort and increases the risk of errors and inconsistencies in data management.
Technology supports your employees and business goals.
As firms expand investment strategies and delve into new asset classes, they must also invest in the technology that supports these strategies and the operations team. Software empowers employees to manage various functions and tasks efficiently.
The benefits of leveraging best-of-breed operations platforms for your teams:
- Asset Class Expansion: As you diversify your strategies to new asset classes, it’s important that your team can manage these complexities in one system. For example, managing private credit investments is a manual process with many moving parts. Leveraging a solution that digitizes and automates workflows in one platform gives you control over your operations and reconciliation processing.
- Reconciliation and Workflow Management: Reduce operational risk with robust exception management and data governance workflows.
- Automated Reporting: Leverage integrated and customized portfolio and investment management and reporting.
Effectively managing and maintaining these pillars - people, data, technology – is key to supporting your investment strategy. Each pillar is tightly correlated; as issues arise within one, another is often impacted. As firms build out their investment strategies and operations teams, it’s important to think about the process holistically and provide each pillar with the right tools to achieve operational alpha.