Specialists in private markets and traditional asset managers dealing in, or wishing to deal in, private market assets, need to review existing operating models and design and implement new target states.
Alternative investments are growing and many industry participants are scaling up their existing operating models in response. The pace of growth has meant many organisations have had to develop tactical solutions quickly – often resulting in a myriad of spreadsheet-based investment management systems, manual processes and reconciliations spun up by investment and operations teams to cope in the short term. The often unintended results are siloed, fragmented operating models, which are costly and complex to run, let alone to change and scale.
Efficient looks different.
- For private market specialists the focus will be on implementing institutional grade systems, processes and procedures – perhaps for the first time – so that the firm can scale effectively and respond to the new needs of a growing investor base. Core value-add activities will need to be distinguished from generic asset management workflows, with a push for automation and data integration that standardises rather than duplicates.
- For traditional managers the focus is more towards conducting a wholesale review of what is in place today and making strategic operating model decisions about how best to support a private markets business alongside public markets. Should these managers utilise multiple, separate operating models given the fundamental differences in the asset class investment characteristics, operational processes and workflows? Should they take the more radical “greenfield” approach and attempt to build a new single operating model that accommodates both markets? Or should they consider on-boarding the private markets business to the existing model used to run public markets?
Both types of managers will of course want to keep their competitive advantage in-house, but may look for opportunities to outsource, particularly to utilise large (potentially specialist) asset servicers to perform low value-add functions. Third party providers can create the required economies of scale to make such activities commercially viable, in addition to providing an appropriately robust service.
A fundamental question remains though across all levels of the operating model – is it better to pursue a best-of-breed model driven by asset class requirements, or to accept compromises in order to gain the benefits of harmonisation through developing a single multi-asset operating model?
A good start to addressing this is to clearly define operating model principles, identify suitable options in line with these principles and undertake a disciplined assessment of the trade-offs and business case of each. Effective utilisation of technology is at the heart of the answer, and a marketplace of viable new solutions is emerging.
Find out more in Part Two of this series on private markets
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