How technology is improving operational efficiency
Fund Operator speaks to Evan Fire, Chief Information & Operations Officer, Pzena Investment Management about why data management is one of the biggest threats to operational efficiency and how to overcome it
Fund Operator Editor POSTED ON 12/29/2019 9:35:06 AM
Fund Operator: What are the biggest operational challenges that fund managers are facing today?
Evan Fire: I have been with Pzena for 15 years and am in charge of operations, technology and cybersecurity.
One of the advantages of wearing these varied hats is that I am introduced to and have my hands on, the operational process, the technologies that are currently at play in the industry, and items that are starting to seep their way into the traditional business models.
Speaking generally and not necessarily about Pzena, for any firm that has been around long enough, one of the biggest operational challenges is the management of data.
Firms who have been around for any length of time were originally architected in a siloed way, whereby data resided within the application. They operated with a myriad of applications, each with their own unique data sets.
"For any firm that has been around long enough, one of the biggest operational challenges is the management of data"
In a perfect world, you probably would operate off of a data layer - some sort of golden copy of data, with your application stacks sitting on top of it so that everyone can access the same source of information.
However, if you don’t have good data, it becomes very hard to introduce new technologies for automation, such as Robotic Process Automation (RPA), machine learning or artificial intelligence (A.I). Having good data is the starting point.
Another issue in our industry is that we are all under fee pressure, so finding a way to operate in a more efficient way is a priority for everyone. In order to do that, you have to leverage technology to eliminate mundane and repetitive tasks, so that people can focus on areas that are meaningful and add value.
FO: Does this mean that anything that is simple you want to move away from being in-house either by automating it or putting it into a digital format?
Evan: Yes, I think that is right for most businesses these days. But also, operational efficiency is something as basic as looking at the procedures that you have been using to run your business. You need to understand the things that people are spending their time on and why.
Operational efficiency can start with something as simple as asking why you are doing something and whether or not you should you be doing it.
"Processes can be automated and streamlined, removing the human element so that they can focus on more meaningful tasks"
Once you’ve resolved this, you can leverage technology to take repetitive tasks and things that are very basic and consistent in nature. These processes can be automated and streamlined, removing the human element so that they can focus on more meaningful tasks.
FO: Can you describe some of the technologies that are playing a role in attempting to resolve these operational challenges?
Evan: A lot of the larger players in the financial services space, especially large banks, have thrown a lot of money at robotic process automation (RPA).
The capabilities of RPA, machine learning and AI advancements are creating intelligent workflow capabilities. This is a big area that is starting to really be explored in a way that creates operational efficiency.
If you can find the right use cases for this, then there is a lot of capability that is starting to develop in the area of automating repetitive tasks.
FO: Are many of these solutions off the shelf, can they be built in-house, or outsourced to a third-party?
Evan: It is a little bit of all of it. In the RPA space, particularly, there are a lot of subject matter expert consulting firms popping up. With this, you can leverage a third-party expert to help get your initial proof of concepts built to demonstrate ROI to your executive boards. This is probably a good place for smaller shops to start.
The reality is that, at some point, there is going to be a shift in the skillset that your workforce needs to have. You are probably going to end up with business people becoming more tech savvy and being able to work side by side with this new technology.
"You can leverage a third-party expert to help get your initial proof of concepts built to demonstrate ROI to your executive boards"
It will be somewhat of a hybrid between an operational-type person; someone who is good with Excel, has played with coding, and is comfortable with technology, and someone who is a developer and writes code. This becomes really valuable in helping you manage the technology for your team.
FO: Do you feel that a lot of the current roles in the operations segment will disappear or evolve over time?
Evan: I am not sure, but I would guess that most of the younger people who are entering the market these days tend to be fairly tech savvy, simply because of the world they are growing up in. There will be some natural skill changes happening just in normal turnover within operational teams.
But at the end of the day, even in our team, we are starting to see people’s skills and the evolution of their careers start to move more in the direction that I described previously. I don’t know that people become obsolete unless they are actually obsolete themselves. And if this is the case, then they probably weren’t going to be around too long regardless.
"More senior level staff who stayed in their lanes throughout their careers may struggle"
This is going to be an evolution. For the more senior level staff who stayed in their lanes throughout their careers, they may struggle. But people who are flexible and have adopted technology as their careers and roles have morphed will be okay.
A lot of the technology is becoming fairly user-friendly. For instance, we have two operational people who have been helping us build out visualizations in new software who didn’t have any coding or technology training.
They were able to learn the intricacies of how to operate in that app and build some very attractive data visualizations.
This gives me hope that it is less doom and gloom and more of a gradual shift for people.
FO: How do fund managers balance the integration of technology with the increase in regulations?
Evan: The regulatory environment that we all live in is challenging across the board. What ends up happening is that we are all being forced to follow the new rules.
If you take an example like GDPR, this regulation comes out of the EU, but it does apply to anyone dealing with EU citizens. So, if you do any business in Europe, the reality is that you have to worry about it.
You have to learn to solve these problems because they become the cost of doing business.
Typically, you have to find ways to outsource and leverage outside expertise where it is appropriate. It’s about finding technology solutions that make being compliant more effective and less burdensome.
"GDPR comes out of the EU but it applies to anyone dealing with EU citizens. So, if you do any business in Europe, the reality is that you have to worry about it"
In some specific instances, you may have to hire people who add to your capabilities, because of the level of complexity and the changing environment.
There is definitely a cost to the regulatory environment when it changes. And at the rate that it has been going recently, it definitely affects everyone. In order to stay competitive, you need to find the most efficient path between A and B.
FO: How much of a role does scalability play in the struggle to improve operational costs?
Evan: One of the key components of my job is that I have to try and figure out how you help the business through operational and technology improvements.
I have to run more assets under management and reach out to more geographies and distribution channels to grow the business without having to keep growing head count.
"Scalability plays a huge role in figuring out a path forward"
If you are lucky and/or smart enough to figure this out and can scale the business using your existing staff, you are going to be pretty successful. This is a definite focus of mine, and probably a common thread for anyone who sits in a similar seat.
Scalability plays a huge role in figuring out a path forward because what got you here is not necessarily what will get you there.
This article is taken from the research report Fund Technology, Data and Operations, America 2019. To download the full report click here.
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