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Asset servicing: The future needs a roadmap, says Citco

With the alternative asset industry continuing to grow rapidly in size and complexity, service providers need to create a roadmap to meet manager and investor needs, says Citco’s Jay Peller

This article is sponsored by Citco.

One problem with clichés is that while they are true in some sense, they can often obscure plenty. “The future is here” gets shouted all the time without acknowledging that yes, it may be here, but that “future” is hardly static. It will continue to evolve and that will require constant examination and adjustment to properly understand and respond to that evolution. And for the asset servicing industry, there are steep costs for vendors and their clients that don’t devote the time to addressing the future right now.

So, we spoke with the head of fund services for the Citco group of companies (Citco), Jay Peller, to discuss how Citco is planning to meet the needs of its clients in the coming years. That, of course, requires taking a look at where the industry is today, and what it says about the road ahead.

With covid hopefully receding for good, what do you think its lasting impact on your business will be? What changes wrought by the pandemic are here to stay?

Jay Peller
Jay Peller

As an asset servicer, when the pandemic broke, the first and last priority for Citco was to make sure we gave our staff of over 8,000 people what they needed to meet the service level agreements (SLAs) of our clients, and many of those staff were used to working together in the same office. It took us about 11 days to get the processes in place to pull this off, and those first few days were rough. With offices around the world, we already had a lot of the workflow tools to collaborate remotely, but we weren’t employing them at the volume and pace that the lockdowns required. There was still plenty to roll out and refine along the way, but in the end, we managed to meet all those SLAs.

I don’t want to minimize the effort here. We had to manage all the tasks that require multiple sign-offs from the client. We didn’t just have to train staff, but clients as well in this new, completely virtual workflow. It’s funny how grateful we were for simple tools such as electronic signing and online meeting platforms to help make this happen.

The reality is that the pandemic sped up a lot of the digitalization process that was already underway and showed how nimble we can be when it’s a necessity. We rolled out a new collaboration platform over this time period, where clients can initiate, review and approve tasks like capital calls, vastly simplifying processes. This might have taken two years to roll out, but we did it in one year, with everyone trained in three months instead of six.

And once we saw how well we could meet our clients’ needs remotely, it became clear that – going forward – we would continue to support a hybrid working model. In turn, this means that we need to be thoughtful about what happens when teams meet in person, with a focus on collaboration and culture-building that is difficult to do remotely. We have a unique culture here, and it takes time face-to-face to protect and continue to cultivate that.

But we’re also aware that one of the blessings to come from the past few years is that we’re better positioned to tackle disruptions of any kind. I think back to when Hurricane Sandy hit and all we needed to continue to meet our SLAs. And now, we’re ready to work from anywhere, regardless of the external conditions, and that’s no small thing. I think we’ve all gotten a two-to-three-year lesson to expect the unexpected, which can only make us stronger in the long run.

Let’s talk about the long run. What are the biggest challenges facing your industry over the next three to five years?

We think that the biggest challenge is the increasing complexity of managers who are diversifying into multiple asset classes to meet the demands of institutional investors. They’re not one-trick ponies any longer, with hedge funds moving into private equity, private equity firms launching closed structures for credit and many alternative asset managers launching real estate and infrastructure vehicles as well.

Why is that a challenge? It’s about managing all the data and continuing to deliver it as fast as our clients and their investors demand. And we’re not talking about merely doing massive data dumps but sharing information in ways that clients and investors can download and use to create their own reports. What’s so demanding is that in addition to delivering more data than ever before and increasing the speed of that delivery, it needs to be formatted in ways that are easy to digest and can be reformatted for a client’s or investor’s purposes.

Now, technology has only gotten better, and we’ve made it a priority to take advantage of that progress. We gained plenty of speed by shifting our main data platform to Amazon (AWS), built a data lake and placed an API (application programming interface) atop it, allowing us to better manage client and third-party data, all while giving our clients the flexibility to get exactly what they need from the system.

With so many managers diversifying into multiple asset classes, did you need to invest in talent specific to those new lines of business?

Absolutely. If you looked at our business 10 years ago, it was 99 percent hedge funds. Now, over 40 percent of it is private equity and real estate, and that means we have to bring aboard talent that knows exactly how these instruments work. I grew up in hedge funds, but we have other experts, in private equity for example, who earned their expertise at high-growth alternative asset managers. However, our tech stack is crafted to work across all asset classes, so that a client has a single interface to access all of their data, regardless of asset class.

Given the outsized role technology plays in your business, what are the advances you expect to see over the next several years?

We have a three-year digitization program designed around our expectation that technology will continue to minimize the number of times a human needs to “touch” all the data that’s coming in, being processed and going out. If a task needs to be done regularly, that should be handled by an automated process.

We currently use a combination of robotic process automation, business process management applications and artificial intelligence for automation which, combined, we call “Smart Automation.” We already have over 30 specific RPA processes that perform some basic tasks across all clients, and we use AI for some reconciliation processes as well as document handling.

Our staff are already devoting their time to the data processing exceptions, rather than actual processing and review of the bulk data itself. This digitization program is turning our staff into “value add” analysts, which is more enriching for them and our clients – and the less human “processing,” the less risk of error.

We’re aiming for a “touchless” future, though I’m not sure we’ll quite get there. But the idea is to automate as much as possible, so that we’re able to apply our expertise in ways that allow our clients to level up the quality of what they get from us. Our clients appreciate our forward-looking approach, and I’d suggest any manager makes sure that their service provider has a roadmap for a future: a path to increase automation and machine learning, and tap the vast powers of today’s technology. It’s the only way to be ready for the challenges that are bound to show up sooner than anyone expects.