Three Ways Asset Managers Can Drive "Partnership Alpha"

I was having a future-focused planning conversation with a chief information officer recently when an inevitable question came up: "Vendor and provider consolidation is rampant but I guess that’s the world we live in. What can we do internally to maximize those relationships?" It’s become a familiar question as an increasing majority of asset management firms use third parties for more critical support including hosted technology and/or business process outsourcing. This expanded adoption, in combination with an era of vendor/provider consolidation, is beginning to open manager’s eyes up to a new reality: Asset management firms are as responsible for optimizing their partnerships, or generating “partnership alpha,” as the partner itself. Here are three ideas that CIOs and COOs should consider to maximize fewer relationships. 

Invested Oversight

Vendor and service provider consolidation is driving the need for asset managers to re-envision oversight teams and set broader goals. When asset management firms first began outsourcing mission-critical services like middle office, there was a heavy operational and risk focus to oversight. Then, increased adoption of cloud-based services required another dimension of oversight—this time with a technical skillset and ability to troubleshoot critical intraday processes alongside their solution partner. Today, one partner may be responsible for specific middle office functions within an asset management organization, support hosted technology for another product line, and provide fund administration for another.

In response, asset managers should create reporting lines and new expectations for their oversight teams that target overall platform leverage, not just service level agreement (SLA) monitoring. A good, cohesive oversight team, with a blend of operational and technical skills, and the right exposure to a partner’s broad capabilities, can drive additional operating leverage from the platform. Asset management executives should ask themselves if their teams are incentivized to create this additional leverage.  

10% Better

It’s difficult to focus on iterative improvement when relationship/oversight meetings devolve into status or triage sessions, but the consolidated landscape now demands more from asset managers than just monitoring SLAs. We've seen agile-based efforts help asset managers create tangible, incremental gains within their own organizations, but the SLA and operating methods that support key relationships haven’t evolved much at all.

In the world of fewer solution providers, we're often in it together for 10-15 years at a time, and oversight action teams should have the shared responsibility of optimizing the platform. I just highlighted oversight teams taking a more strategic view, but there are also plenty of iterative opportunities available. Target areas such as settlement speed, security master quality/completeness, simplified overnight processing, and straight through processing (STP) rates are examples where operational gains benefit both firms. Partner-facing teams should create incremental improvement campaigns (think “10% better”) where resources on both sides of a relationship can work together to create small, impactful wins. These wins won’t necessarily result in lower servicing fees that month, but they will provide evidence of increased operating leverage and a stronger partnership.

Emphasizing Soft Skills

Lastly, it's important that asset managers invest in developing soft skills for all employees, not just a select few, to excel in a consolidated world. Think about it: Agile work teams, co-location, and flatter management structures demand that employees work effectively in small groups. The health of your strategic partnership is highly dependent on resources who can work across organizational and partner boundaries, in real time, on a diverse set of challenges. This doesn’t change after conversion weekend—going forward, a higher percentage of staff from broader backgrounds will be involved with partners to help generate the "partnership alpha" that companies, board, and shareholders have come to expect. Employees across the organization are on the front lines of partner relationships and many require support and training to develop critical relationship skills.

Conclusion

There doesn’t appear to be an end to vendor and provider consolidation in our future, so asset managers’ focus during this market cycle should be on refreshing who, and how, they interface with their partners. The asset management industry will need to think differently to cultivate partnership alpha from a narrowing field of technology vendors and service providers.