Preparing Technology for New Investment Portfolios
The quest to maximize yield and returns through exposure to different types of investments frequently leads to wide diversity in asset classes within an investor's portfolio. This can create ch'allenges for an organization's operations, accounting, technology, and accounting teams. Some asset classes, such as stocks and performing bonds and loans, are easily handled by automated processes. Other asset classes require more complex processing capabilities. As a result, many insurance firms with diverse portfolios find their teams lacking the sufficient operations, IT systems, and infrastructure to support the company's strategic investment objectives.
As financial markets continue to grow and become increasingly complex, now is the time for insurance firms to examine their operations and infrastructure and to invest in technology that supports growth and performance. As one of the world's largest providers of financial technology to insurance firms, SS&C is often asked: "How should insurance firms assess and evolve their technology to support increasingly complex asset classes?"
Institutional portfolio managers are investing in a challenging economic environment -- yield-starved portfolios are naturally driving asset class reallocation. These modified strategies are creating more exposure to diverse asset classes, which include private equity partnerships, expanded use of derivatives, bank loans, residential whole loans, commercial mortgage loans, and others. These assets are also recognized for significantly enhanced accounting, reporting, regulatory, collateral management, and internal controls. There lies the need for better technology and operational support.
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Periodic and regular reviews of a firm's systems are critical to determining their effectiveness. Because markets, regulations, processes, and technologies constantly change, a thorough analysis of operations ensures insurance companies are keeping up with industry practices. Expertise is essential -- firms should work with consultants who have extensive industry expertise evaluating operational capabilities. Though it might be easier to leverage internal staff, firms working with external consultants can learn best practices from industry peers, rather than limiting the scope of improvements to the knowledge their teams have developed internally.
When conducting an operational analysis, it is important to question the entire process. For example, why are certain reports produced, and who uses them? Is a particular manual process truly necessary, and why can't it be automated? The goal of the analysis is to understand the root causes behind your system design and the cause-and-effect relationships of the operational decisions that have been made historically. Consider using techniques borrowed from Kaizen and Six Sigma processes, such as the "5 Whys" iterative questioning process, to better understand the root causes behind operational issues.
One of the key places to start an analysis is to examine the capabilities of a firm's IT systems. Some of the common errors SS&C has observed with how firms utilize software investments include:
- Failing to upgrade systems on a regular basis and, as a result, not taking advantage of new product features
- Upgrading software but continuing to follow old processes, thereby ignoring new features
- Not using product features as intended, which is often easily corrected through training
- Not raising operational pain points with vendors, many of which can be easily resolved
- Failing to implement new software features due to upstream or downstream IT complexity
- Not staying current on new technology solutions to support your specific needs
- Failing to recognize opportunities to outsource portions of your IT and related operations
Today's technology has greatly enhanced the ability to outsource not only entire operations, but also select pain points.
Tim Reilly joined SS&C in June 2013 and serves as SVP of Institutional and Investment Management. Prior to joining SS&C, he held senior financial roles at PwC for almost 28 years across local, regional and national markets, most recently serving as market leader in its ... View Full Bio
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