What will the new normal look like for the fund finance market?

Our innovative FundFinance toolset uses artificial intelligence to address the rapidly evolving challenges of the fund finance ecosystem

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These are trying times for the entire world.  Industries around the globe are facing unprecedented challenges to “keep the wheels on the cart.”  Financial services are no different.

From 10,000 feet, the financial services industry should be able to operate in a distributed way better than more “bricks and mortar” industries.

But the detailed view is more nuanced.

  • Reliance on technology to the degree required for social distancing requires practice.  Take videoconferencing: how close to the screen, what do I do when I sneeze, when do I turn on or off video, where should I focus my eyes, how do I stop looking at my own image? All these questions have right and wrong answers, and we all need to improve our understanding.
  • Other challenges are important as well – something as simple as signing documents remotely has proven to be a daunting (and often annoying) challenge.
  • Another more substantial challenge is safely and effectively using and protecting data accessed remotely.  IT teams have set rules over the years that turn out not to be so practical in the all-out work-from-home scenario we face today.  The relatively safe practice of simply blocking data from leaving the company’s internal network is no longer a reasonable approach when all market participants work away from the office, often on personal computing devices.

Impact on the fund finance market

In the fund finance market as an example, data is largely unstructured – documents define relationships between investors and sponsors, sponsors and lenders, even the investors and the facility itself.  Those documents define the establishment and approval of the facility.  Other documents provide the data to manage the facility throughout its life.  Structuring this data so it can be accessed is done manually, by reading documents and creating spreadsheets detailing (for example) borrowing base details over time.

Spreadsheets are created by individuals, who become the “keepers” of this critical data.  Even in the best of times, it is nearly impossible to ensure the data is consistently updated and distributed to all interested parties.

  • Spreadsheets are limited in their ability to maintain flexible data structures to answer new questions as the business evolves.
  • Providing access to all the teams who require it to do their jobs requires Herculean efforts by the “keepers,” to varying degrees of success.

Now throw in market turbulence from Coronavirus COVID-19, lack of access to the workplace, and the need to predict uncertain sponsor or investor behavior.  It becomes apparent that access to reliable data on a timely basis is critical.

  • Spreadsheets are shared via email, or copied from one folder to another, without version control.
  • Updates made to one instance are not made to others, creating unreliable analysis and reporting.

Analogies to a “fog-of-war” can be easily drawn, as management tries to make their way through the event with data “blinders” on.  Bad outcomes can occur.

What are the implications post-crisis?

So far it appears that the fund finance market continues to operate during the outbreak and that, while some activity may trend downward for a period, there are no indications of panic or massive slowdown of deal flow.  In fact, some have pointed to ramping up of slower progressing deals to close more quickly, increasing activity in the market, although one would expect that to tail off as the situation lengthens.  No one seems to expect interruption in the market.  That said, the efforts to avoid the problems suggested above are taxing on all participants.

Coming out of this event, we will be a changed culture.

There have been many papers written already proposing possible changes. We will fly less, we will work from home more, we will move out of populated centers.  Video will be an acceptable mode of meeting: that seems inevitable as we become accustomed to the approach over the next weeks or months.

Secure access to data from distributed locations will become even more critical in this new world.  In general, the ability to perform work without needing to be in a particular location or in the physical presence of a particular person may very well frame our behavior coming out of this event.  According to Sionic’s latest Coronavirus-COVID-19 briefing paper written by my colleague Xavier Pujos:

“Banks must adapt their processes quickly and go digital. They cannot keep all their branches open. The digital banking transformation must accelerate, allowing the allocation of credit fully online, which in turn means that some KYC checks will have to be simplified and run entirely over the Internet (provided IT security is handled properly). More clients accessing their portfolios and accounts online means requirements for stronger resilience and support for the bank’s systems, thus a high level of service and performance.”

Sionic’s FundFinance toolset is one example of technology that enables this new way of working by enabling the distribution of activities in a secure and effective way.  The toolset checks many of the boxes that the current data storage miss:

  • access data from anywhere, on any device
  • protect data according to best practice data access standards
  • create flexible data structures that evolve with the industry
  • perform ad hoc analysis quickly to understand and address adapting market behavior
  • facilitate appropriate use and availability of current and historical data
  • ensure a “single correct source” of correct data
  • add traceability to original documents to ensure data accuracy

What’s the positive?

These are dark days with more to follow. But with a lifetime spent working in data and technology, I take courage from this thought: we are getting better at fully utilizing the power and potential of new tools, achieving new ways of living and working. And maybe some of that will benefit the planet we call home.

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About the author

Ken Bigelow

Managing partner

As an experienced global CIO, I know how to navigate change, negotiate stakeholder needs and deliver results.