In today’s competitive environment, ensuring that operating models can seamlessly support both organic and inorganic growth opportunities is more important than ever.
Speaking at the 8th Fund Summit, a panel of industry experts discussed the operating requirements that underpin their organisations’ significant growth plans.
Lee Sammartino, Head of Corporate Growth at Cbus, told the audience that Cbus’ growth objectives include managing $150bn in FUM by 2026.
“It’s a race to scale,” Sammartino said, citing stronger cost benefits to members, as well as greater access to unlisted investment opportunities; lower administrative and investment costs; better products and services for members and larger marketing budgets to build brand and attract members as key advantages of scale.
“We anticipate that market consolidation will continue at a really rapid rate over the next few years which should result in fewer funds and increased scale to improve funds’ performance. This will lead to competition intensifying and consolidation of more funds,” Sammartino said.
The benefits of scale are not limited to the super fund industry.
IFM Investors has been doubling its funds under management roughly every four years, David Johnson, Executive Director Business Transformation at IFM Investors told the conference.
“This is through the continued growth of our flagship infrastructure fund, but also through expanding our capabilities across asset classes and across geographies. As part of that global growth, we’re continuing to mature and expand our presence across North America, Europe and Asia – both in terms of scaling operations efficiently, but also with a view to operational readiness for the evolving regulatory requirements in each of those jurisdictions,” Johnson said.
The success of these types of significant growth trajectories relies on having an efficient operating model and transformation strategy that streamlines, rather than fragments, operations.
While the first question for Cbus is always whether a particular merger would meet members’ best interests, the second question is “how is the operating model set up, or how would it need to be redesigned to facilitate inorganic growth,” Sammartino said.
“[That means] looking at things like performance management to assess how you are tracking against your growth ambitions; the risk management frameworks; design principles and target operating model; service delivery design and enablement – what does that need to look like to optimise growth. Governance is very important. [We also look at] processes, so how you can gain operational efficiencies and reduce costs without compromising quality outputs and lastly technology and information, which is the glue that brings it all together,” Sammartino said.
At IFM Investors, meanwhile, the operating model has recently been redesigned to facilitate simplification and collaboration through integration and automation. “Technology simplification is an important part of what we’re looking to achieve. Fewer core platforms to simplify the employee experience and make it easier for people who are moving around the globe,” Johnson said.
A significant component of that transformation process has focused on data integration. “Data integration has been a huge part of our operating model, using platforms that have API-driven connectivity between applications and partners and that’s particularly important. For example, the Sustainable Finance Disclosure Regulation (SFDR) in the European Union driving a lot of activity for us and that is only increasing, not slowing down,” Johnson said.
Indeed, the conference heard that data management can make or break growth plans.
Mitchell Slocombe, Solutions Architect APAC at IHS Markit said the inability to access and manage data can be a key inhibitor to growth. In response, he said, there has been a “monumental” shift in the way that firms are looking at managing their infrastructure.
“We’ve seen a huge shift to managed services across the board. A lot of firms now are looking at putting in place not just managed services, but managed data, managed infrastructure and not in the traditional outsourcing model, but rather selecting specific capabilities end-to-end, inclusive of data and hosting, which allow these various components to then scale as their business needs grow or change,” Slocombe said.
Slocombe said that, particularly when businesses are looking to scale up, having several point-to-point solutions can significantly hamper growth and impede operational efficiency. “You could have a front office risk solution taking data directly from a custodian; you could then have a back-office process taking a different set of feeds and then you end with timing or data quality gaps, and all of a sudden you’re out of sync between your front office risk and back office positions for example,” he said.
Slocombe said that most firms are in the process of implementing relatively sophisticated data governance processes that manage timeliness and accuracy. Having a solid framework in place is however a prerequisite to being able to reap the benefits of growth, he said. “Once you’ve got that framework in place, and I would say 60-70% [of investment managers] are still struggling just on that front, then you can start leveraging it to get cost synergies or trying to get some kind of return on it,” Slocombe said.
Legacy systems can also complicate benefits of scale. “A lot of legacy systems follow legacy organisational structures. There’s that kind of phenomenon that, if you have two operations teams doing the same thing, they’ll probably have two different systems doing the same thing,” Slocombe said.
To transform that, Slocombe said it is critical that firms get the fundamentals right first. “Get your data architecture correct, understand where the data is and then build on that. If you get your sequencing wrong, that can be pretty challenging for firms and you spend a lot more money then re-engineering the next thing because your underlying data architecture is incorrect.
Finally, people management is a critically important component of a successful growth strategy, starting with ensuring there is alignment of values across the (merged) entity. “This is paramount, especially when looking at mergers. In other words, are the two potential merger partners like-minded funds? You wouldn’t necessarily put two very different funds together,” Sammartino said.
But even beyond that, delivering successful change requires particular attention to helping people design and adapt to new ways of working.
“We’re going through a process at the moment, consolidating our investment management platforms and the issue for us is not really legacy systems as much as it is the legacy processes and ways of working,” Johnson said.
Johnson said that IFM Investors is managing the transformation by ensuring business, process and data architectures are well-defined, which in turn facilitates change management at a personal level.
“If we have strong definition of business, process, data architectures, then you get a lot more flexibility to move at pace if you’re working in that managed service environment with good data integration capabilities. The definition of those architectures is not a small undertaking but it’s certainly an investment that pays off, and so that’s the area we’re really focusing on,” Johnson said.
At Cbus, the approach to change is managed both from the bottom up and the top down.
“We develop plans by adopting a top-down approach. By doing this it eliminates time-consuming coordination tasks and its generally more efficient, [but] when it comes to delivery of plans, its more effective with a bottom-up approach because it involves more realistic actions that actually involve staff that are on the ground actually executing the strategy. Both are equally important and inter-changeable depending on where you are on the lifecycle journey,” Sammartino said.