Why Investment Managers Should Stop Managing Reconciliation Processes in Silos

by Electra Information Systems | Best Practice

An investment manager’s post-trade operations environment generally evolves as the firm grows. Technology solutions are important for helping firms manage increased trade volumes, mitigate risk and lower costs. Operational efficiency is always the goal, but over time, siloed solutions used to manage a particular area of operations get in the way of reaching that goal due to the tendency to make solution choices according to organizational structures and processes already in place.

In hundreds of discussions with investment managers over the years, we’ve often discovered the existence of multiple reconciliation silos, little collaboration across teams, and limited visibility into the data needed to improve the situation. In order to find the best solution to the problem, first we must understand the full impact and significance of the problem on a firm’s business.

The Dangers of Operational and Reconciliation Silos

Investment management firms typically treat reconciliation and exception management processes as departmental functions that create redundant effort – which then cause increased errors, low staff productivity, and unnecessary operational risks and overhead costs. As complexity and trading volumes increase, firms face even more challenges when they try to scale the business and meet growing investor and front-office demands.

Consider some of the key operations departments and the different types of reconciliations they perform, including:

Operations: Daily reconciliation of multi-currency cash, transactions and positions (unaudited and audited)
Accounting: NAV and P&L reconciliation
Finance: Monthly or quarterly market value reconciliation
Collateral: Daily reconciliation of collateral balances, initial margin, variation margin and maintenance margin
Corporate actions: Reconciliation of corporate actions data including event details, eligible quantity on security positions, and golden record reconciliation
Settlements: Reconciliation of trade-date security transactions, failed trades, pending trades and SSIs
In almost all cases, operations staff perform each of these reconciliation processes using different platforms including Excel, system modules or add-ons, and reconciliation-specific applications. The problem with this approach is the absence of enterprise-level investigation audit trails due to their disparate locations. This creates redundancy and unnecessary steps in the investigations process.

The Solution: A Collaborative Process

In a silo-based reconciliation environment, staff will find themselves duplicating much of the work that had already been performed by their colleagues. To make matters worse, the repetitive investigation work being performed across different teams is often hidden from management, so the inefficiency goes undetected. As transaction volumes increase, inefficiency will rear its ugly head in the form of scalability issues and the need for more staff.

To address this issue, a reconciliation and exception management solution must be comprehensive enough to support all the reconciliation processes found across the middle- and back-office functions while also fostering collaboration across these areas. Rather than viewing multiple reconciliation silos, management and operations staff must be able to access a single point of reference where the benefits of collaboration are obvious throughout the investigations workflow.

About Electra Information Systems

Electra’s mission is to help investment managers, hedge funds, fund administrators and outsourced service providers mitigate the risk, cost and inefficiency across post-trade processing and improve their business operations for greater growth and profitability. We achieve this by delivering powerful post-trade solutions and complete, timely and accurate data that support and improve reconciliation and various middle- and back-office processes across the firm’s operational ecosystem.

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