Lord & vassal…golfer & caddie…master & apprentice―archetypes for the past relationship between an asset manager's front and middle offices abound. Clerks, the ancient moniker for middle office operations workers, understood this relationship well―if you mastered everything; the functions, the processes, the art of front office appeasement, then you had an opportunity to be elevated to the front office when someone died. It was the proverbial back-door into the front office once the mailroom was no longer a viable starting point. The middle office ops traditional career path gave the front office a bench of resources already versed in both institutional knowledge and the general mechanics of investment operations―foundational bodies of knowledge for an asset manager's investment decision process.
Labor mobility, middle office outsourcing, and managed services, among other factors, have by-and-large consigned the middle office ops-to-portfolio-manager narrative to history, a shame as who doesn't love a good rags-to-riches story. However, the concept of an in-house bench of generalists already fluent in institutional knowledge and concepts such as the life-of-a-trade remains desirable.
The prevalence of third-party service providers absorbing what had been record keeping job functions is pervasive. In fact, the specialized expertise offered by service providers is often one of the top contributing factors to an asset manager's decision to outsource or to use managed services. The appeal of dedicated teams at the various service providers specializing in just collateral or just foreign exchange, for example, is understandable. In an industry where complexity increases every year, there is effectively an arms race to secure specialized expertise.
What is lost in this expertise arms race is the potential value of the middle office generalists, the operations specialists. Instead of shutting down the trickle of people that were rising from the middle office, in lieu of just top-tier MBA people, asset managers need to consciously devise in-house career paths to the front office regardless of their target state operating model. Operational experience is at its core a collective understanding of exception management and exception mitigation across all critical investment functional areas. This type of operational experience in the front office will benefit the overall organization. From having a deep understanding of how a specific investment accounting data element is calculated to recognizing a corporate action exception in start-of-day-cash, the practical application of operational knowledge in the investment decision process has significant albeit overlooked value.
In spite of the proliferation of outsourcing and managed services and the apparent demise of the middle office generalist, asset managers will benefit if they develop a career path for the operations generalist. The path of the superstar operations person making it to the front office no longer happens automatically. It will need to be manufactured and protected by enlightened asset managers.