FOUR QUESTIONS – Paddock Consultancy’s Bill Salus on a no-nonsense approach to funds tech and data operations, and maybe more nonsense when it comes to pizza
This is the second in a series of Q&A’s with leaders in the fund and fund services industry. Bill Salus is founder of Paddock Consultancy. He’s the former CEO for Apex Fund Services and has more than 30 years of leadership experience under his belt in the global investment and financial services industry including with BNYMellon and PNC Global Investment Servicing. He and his team are engaged regularly as domain experts in the alternative fund administration and the fund servicing space to formulate growth plans, review specific acquisition targets or segments, and help steer fund services teams right.
EDITOR’S NOTE – There are technically five questions below
Harmonate – Talk of technology as a game changer in fund administration is perpetually buzzing. How much of it is real, and how much is bunk?
Bill – What if I told you that investment managers’ organizations will become only capital raising and investment process focused, and that all communication between GPs, LPs and service providers will occur digitally within a secured cloud environment. What does a service provider, particularly a fund administrator in that scenario look like?
Technology in fund services – just like everywhere else – is illusive in some respects, and very concrete in others. Service providers are challenged with developing technology, as much as they are with identifying third party applications and bringing them into their own environment.
Before anything is going to work, you need to measure the integrity of the data management process and consider the right upgrades. Otherwise you risk investing in innovations like machine learning and AI-driven data analytics that sit on top of garbage data. I don’t care what you say about the power of your unsupervised machine learning. As Bill Gates wrote years ago, in effect, automating a bad process yields getting bad results quicker.
While technology capabilities have scaled beyond anything we might have imagined a decade ago, users have not outgrown the imperative of accurate, user friendly information on the front end of any computing task. Far from it. Speaking directly about fund servicing, service providers have seen their focus move from a general ledger or accounting centric sandbox to a data centric one. Therefore, solutions are being created with a view beyond accounting information.
Is this also beyond the comfort zone of say fund administrators? Let’s say it’s where “new fund administration” is headed.
Poor data quality is an enormous drag. It limits big data’s potential. As well as the potential of the user system – GPs, LPs, service providers – to manipulate, analyze and deploy the data as actionable information. Advanced computing is being perched precariously on top of legacy business systems which are in turn creaking under the weight of what’s being asked of them. So-called fund intelligence is only as good as the accuracy and usability of the underlying data. Sound familiar?
AI-driven statement processing isn’t possible without reliable data operations. The automation that makes such leaps in efficiency possible will only be a faster route to the wrong outcome unless the correct data is collected from the first interaction with the documents. Data quality should be the priority for any fund expecting to profit from high-end analytics.
Harmonate – Okay, so then the best way forward is probably some big data operations moon shot?
Bill – Smart companies won’t allow the consideration of major change to cause paralysis within their operating environment. They’re under too much scrutiny from their board, regulators and especially their investors. There are important conversations to be had in boardrooms about how quickly fund services companies want to embrace emerging technology, but those deliberations shouldn’t prevent the deployment of data operations in additive ways that set the stage for bigger leaps forward when the time is right.
I mean, you don’t have to have AI that gobbles up all of the intelligence of your firm and starts discovering new ways to do fund services. But you can go from two weeks to turn around statements to 24 hours. You can deliver pan-fund info to LPs, complete compliance and regulatory reporting faster, and streamline pesky arithmetic calculations like for waterfalls or carried interest. That’s been done. And that’s the foundation for everything else when you can do it with the right quality.
The main point is to achieve a mindset geared toward feeding the data machine the best quality information, and ensuring you can change that diet and upgrade it at the pace of your most demanding customers. The alternative is to be resigned to investing in innovation that might be sitting on top of junk.
Harmonate – Are there other industries to look to for clues on where fund administration is headed?
Bill – Any solution needs to maintain the risk profile that the manager is looking for when they’re considering outsourcing.
This is central to service providers being granted further access into an investment manager’s infrastructure, to solve more data and workflow problems, as well as to unlock additional revenue pools.
Throwing a light switch and handing the cost of the manager’s people over to a provider who then spend the money on their own people doesn’t solve the issues. And it doesn’t reduce the risk of managing an investment company. Those resources should be deployed into technology, used by both the client and provider to improve clarity of data, more efficient workflows and achieve at the same time a lower risk profile.
All of this, all of it is based on the rigorous intake of data in a high quality manner that scales. It’s possible if you don’t futz around with point solutions that solve a single problem, but are based on messy code that doesn’t scale and is unfriendly to users.
Harmonate – Final question, I hear you dabble in the kitchen… have you mastered the COVID-19 sour dough recipe yet?
Bill – Well, like only being able to sing in the shower, I can cook, as long as I am the only guest that night! But, we certainly have a bunch of excess time nowadays, and I can’t think of a better way to pass that time, than to make something delicious.
Harmonate – Sounds good, but suspect it’s modest… where are you on pizza dough levels of hydration?
Bill – Oh! Don’t ask…but trying to settle around 65 percent… Ha!… But remember, I only cook with wine, and sometimes I even use some of it in the food!! Unlike fund data operations, I can afford some funky outcomes so long as my family takes a much longer view than your average LP.