By Joe Woodbury, Director – Investment Management Solutions at Lawson Conner (part of IQ-EQ)
Private Equity & Real Estate fund managers are weathering turbulent times. Recent Equity market fluctuations are in a direct correlation that maps to the Covid19 pandemic outbreak peaks and troughs and continued market adaptation is anticipated. To date, financial markets are broadly seen to be taking a cautiously optimistic view of the major government fiscal injections and QE in support of global and domestic markets during the current crises. These government backed interventions are also playing out beyond equities to a renewed and ostensibly invigorated interest towards M&A.
The key during this period of market volatility for fund managers is to take a focused look as to what levers they can pull to maximise their respective strategies in the near and longer term and what may present itself as a springboard to increased profitability and efficiency.
One predominant force multiplier is to look at what automation might deliver in respect of accelerating market capture, driving down fund costs of entry and reducing ongoing fund operational costs and liabilities.
Exploring automation and technology should be a significant focus area for financial equity and real estate fund market managers that are seeking to deliver increased positive impact. That market disrupter – is here right now – RegTech.
These are predominantly software tools, services, processes and outputs that are able to work collaboratively to produce largely automated, streamlined deliverables around Compliance, Regulatory and Transactional work flows for today’s fund manager. Such solutions alleviate much of what could be termed as ‘generic practices’ associated with fund management and thereby allowing resources to be focused on core business activity that generates real growth over and above day to day ‘housekeeping’.
Regulatory and Compliance for Equity markets combines to be both an imperative and a headache for Fund managers and Institutions in maintaining comprehensive and consistent disciplines. The consequences of failure may result in fines, curtailment, suspension or worst case, dissolution. As mentioned earlier, this represents a huge onerous burden in terms of continuous and ongoing maintenance with regards to the constantly evolving and changing mandatory legislation, governance and best practice guidance covering aspects such as geographic disparate regionalisation and financial regionalisation. No small undertaking.
In addition, the constantly evolving steady upward trajectory of rising costs for maintaining adherence to Compliance and Regulatory obligations appears relentless. By embracing and adopting an automated approach, RegTech can introduce and facilitate cost optimisation, simultaneously improving broader governance whilst reciprocally driving up the potential release of time for increased customer engagement and better, more effective utilisation of highly skilled staffing resources.
Realising the benefits of a joined up, largely automated approach, today’s visionary businesses and Fund manager leaders can leverage this game changer, one that will undoubtably permit them to steal a substantial differentiated offering and not merely track leaders.
Fund managers are caught between several competing objectives –
- Increasing client engagement, personalising interaction and delivering value
- Adequate time to develop the macro business and fund strategy
- Fast, effective and minimised risk of on-boarding new clients
- Ease and speed of new fund creation and market entrance
- On-going regular compliance and regulatory practices accountability
- Continued maintenance of existing liabilities and risk reduction in the continued servicing of their current client base and fund portfolio
- Mandatory industry reporting and submission cadence
- How to scale flexibly, timely and on-demand
Essentially, automation may alleviate up to three quarters of operational practice overheads that are traditionally performed across most low and mid cap funds. Achieving a result of substantially less day to day interaction of what may broadly be termed as ‘generic’ practices, processes and reporting. The question to Fund managers is what might be achieved through automation that allows key resources to engage and focus on the more important strategic business drivers?
Moreover, recent increased scrutiny and safeguards particularly around AML and KYC necessitate the capability of having a robust audit trail and it is here that the automated approach can provide significant benefits that remove much of the continuous operational overhead, both from a staff resources perspective and the broader operational cost implications. Equally, by definition, supporting external audits becomes potentially more efficient and simpler, whilst having the ability to scale on demand.
It is difficult not to under-estimate the number of areas where fund managers can develop increased efficiencies and improved operational engagement achieved through increased automation:
- Facilitating increased time to focus on client personalisation and engagement
- Proven long term cost savings
- Improved audit trails and minimised accounting errors
- Adaptive compliance across changing geographical and financial regionalisation
- Managed regulatory practices relating to AML and KYC directives
- Maintaining policy updates
- Robust and measured audit trails
- Supports risk reduction strategies
- Seeks to reduce human error
By embracing increased automation, fund managers can make choices towards a fully integrated solution or may elect to take a more granular approach towards implementation of solution components best suited to their business ambitions. Either way, RegTech represents a scalable solution that Fund managers both need and should – explore.
