Can You Grow Ahead of Your Data?

By Stephen Van de Wetering, Founder and CEO, Empaxis on Tuesday, December 18th, 2012

Breakaway asset managers can get along running their operations on what amounts to sweat and a shoestring budget, but once they start capturing clients, the pressure is on to automate.

I see plenty of start-up firms make do with a homemade spreadsheet for everything from day-to-day trade reconciliation to performance attribution.

Manual data entry works for them, because their needs are straightforward: low trading volume, portfolios dominated by easy-to-evaluate stocks and bonds.

But as they grow, the complexity of their reporting needs grows exponentially.

Bigger and more sophisticated clients demand more derivative instruments wrapped around their vanilla holdings, the number of exceptions soars and counter-parties multiply.

After a certain point, the work simply doesn’t scale. Personnel who have to track these complex trades have to contact a third party -- or multiple third parties -- to get transaction costs and current value.

It’s expert work that requires specialist knowledge of how the markets work and investment operations work.

You could hire new people to train as you grow, or you could put all that talent to work on more strategic tasks like working with clients and vendors to build relationships and grow even faster.

And besides, the bigger you get, the greater the risk and the greater the need for catching bad execution or other inefficiencies that can cost you and your clients money. When you start to deal with billions of dollars, even if you are 99.99% accurate, you’re still off by $100,000 for every billion. Every basis point adds up to a lot of money left on the table.

Don’t forget accuracy and speed. Maybe the Excel spreadsheet can flag isolated irregularities, but will your staff catch them all before the trades settle, much less pick up patterns or route future trades accordingly?

After a certain point, automating at least the reconciliation becomes not only cost effective but essential.

I personally believe that point comes right when trade volume increases to the point where one person can’t do it alone.

Some portfolio accounting systems will help, but ultimately you’ll need a specialized system to carry the load. That is why these systems are built in the first place, they leverage technology to do the work for you.

No need to consider this a burden. Look at it as a mark of success -- one that will scale up with you as you attract assets and grow your business.

Breakaway asset managers can get along running their operations on what amounts to sweat and a shoestring budget, but once they start capturing clients, the pressure is on to automate.

Empaxis provides high-caliber, highly customized back-office outsourcing and reconciliation services for asset managers and hedge funds across North America, Europe and Asia.

You May Also Be Interested In…

Reconciliation, Best Practice (Complimentary Whitepaper)

The Best Way to Run Your Reconciliation Desk (Blog post by Mark Wickersham, Director of Product Management, ByAllAccounts)

Solving the Alt Investing Reporting Problem (Blog post by James Carney, CEO, ByAllAccounts)

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