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Performance Operating Model – The Path to Transformation

Introduction

As the phrase goes “you can’t manage what you can’t measure”, accurate and timely performance measurement is a critical input for investment teams to understand the efficacy of the investment process and as a measure of the success of the current portfolio of investments.

Many investment managers these days are facing challenges in meeting the increasingly complex performance measurement and reporting requirements of internal and external stakeholders.

The current performance operating model of a typical investment manager is ripe for transformation. This is due to multiple challenges of increased product complexity, more sophisticated clients, fragmented data management and legacy systems – particularly continued reliance on spreadsheets.

Key Challenges

For investment managers, accurate performance and attribution are delivered by tenured employees, who are typically supported by a patchwork of data, systems and manual processes. Most of these processes are difficult to scale, are time consuming to manage and rely on employee expertise (a key person risk).

Some of the key challenges for the performance function of a typical investment manager:

  • Extensive reliance on business-critical spreadsheets to deliver core performance capabilities and augment system capabilities. This creates a bottleneck to support strategic growth and increases operational risk
  • Current operating model is not able to support scalable attribution across all strategies. Attribution calculation rely on multiple data sources, custom classifications are difficult to maintain, support for multi-asset and fixed interest is not up to the mark and multiple calculators create impediments to scale.
  • Stakeholders are more regularly requesting “non-standard” performance reports, and regional regulatory and tax reporting require specific solutions (example: Australia franking credits). Most of these demands are typically met using manual workarounds
  • Complete set of performance capabilities are often distributed across multiple teams. For example, we have seen operating models where performance and client reporting teams are calculating performance and attribution. Performance data is calculated by multiple teams which creates an overlap in data ownership. Some internal teams go through performance team to obtain performance data while others use outside sources or do it by themselves.
  • Performance data is calculated using multiple performance calculators and multiple data sources. This creates highly complex and fragmented IT architecture increasing the total cost of ownership
  • Clients have started expecting performance data to be delivered to them at shorter intervals (example: daily attribution instead of monthly attribution). Clients usually meet these requirements using ad-hoc solutions which are not scalable

The Solution: Performance Target Operating Model

To meet the key challenges facing the investment management firms a fresh look is required. Reviewing the performance function that includes a performance target operating model design exercise will enable the definition of a clear future state vision and an executable roadmap to facilitate change.

Shoreline recommends a Performance Target Operating Model design approach focusing on three key dimensions: –

  1. Scope and Capacities:
    • Defining scope of services to be provided by the Performance team
    • Define the capabilities to be delivered by the Performance team
  2. Technology, Infrastructure & Data
    • Target IT architecture design to simplify the performance technology landscape
    • Performance data assessment to establish golden source(s) of performance data
    • Reduce dependency on manual workarounds and spreadsheets
  3. Organization and People
    • Optimal delivery model for the Performance team
    • Interaction model with consumers (internal and external) of performance data

How Shoreline can Help

Shoreline has extensive experience in designing Performance Target Operating Model for investment managers. Leveraging our operating model framework and proprietary accelerators, we have helped uplift the performance measurement and reporting capabilities of our clients including a large public sector asset manager in Australia, a niche asset manager in South East Asia and a large regional asset manager in Singapore

Chris Robertson

Associate Director

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