Impact Investing Requires Fund Administration Data Ops

Changes in finance and fund administration mean leveraging unused data with better data operations

Kevin Walkup, CEO at Harmonate – Fund administration services are going through slow but inexorable upheaval.

Investing is more complicated than ever. Impact investing and specialty investing have spawned multitudes of new approaches to finance, money management and trading that require the same transparency, compliance and reporting that investors expect and deserve.

I talked about this recently with Reid Thomas of JTC Group’s NES Financial team on the Fund Services Leadership Series.

What we found through the conversation is that as the world of finance has rapidly evolved, fund administration has endured some hits. In particular, fees that shrank in the wake of the 2008 financial crisis are not coming back. The pressure we’re experiencing to do more for less won’t be letting up. Everyone needs to be thinking long and hard on how to improve.

Yet some fund administrators have not fully faced up to the facts. Often descended from accounting firms and private client services, they use archaic technologies for much of their administrative services. Some technology adoption has accelerated, like payment processing. But many traditional fund administrators are emailing spreadsheets back and forth with clients. They’re stuck in the 1990s.

Data operations, meanwhile, are poised to disrupt fund administration services even further. That’s the upheaval that could revolutionize our already fast-changing industry in the near future. The question is, are fund administrators prepared?

Machine learning and automation can parse through massive amounts of data quickly to garner exciting new insights and efficiencies for fund administration at faster speeds and at greater scale. Automated data extraction from general ledger systems, statements and balances and other sources, for example, can reduce reporting timelines from two weeks to 24 hours, an 80 percent increase in speed.

Data normalization, or putting data from diverse sources into a single form, creating special datasets, feeding client dashboards, reports and service agreements as well as internal general ledger administration, enterprise resource planning and reporting create vast pools of data that contain myriad lessons on how funds operate. That data is like untapped gold in the ground. Whoever can claim and leverage it will succeed.

Yet companies on average fail to use 73 percent of the data they possess to improve their productivity and add value. Fund administrators who fall into that category are doing a disservice to their clients. The best fund administrators view their success as tied to that of their clients and their client’s customers – asset managers and investors. Ignoring a more than a quarter of the information available to fulfill that job is unacceptable.

We can expect impact investing to put even more pressure on fund administration in the near future. Well-intended investments that aim to exert a positive influence on the world are already altering global finance. But impact investing requires the aggregation of a ton of data to perform properly. Impact tracking and reporting is extremely complex. What measure should a fund use to measure its impact – job creation, declines in crime and recidivism, pollution reductions? The list is potentially endless.

Smart people can write comprehensive reports on what might be suitable criteria for a given impact investment. Determining how to collect the data that represents those criteria, structuring it in a manner where one can compare it to a baseline and analyze it objectively in real-time to assess impact, however, is a job for data operations. Otherwise, it’s prohibitively expensive and inefficient at scale.

Impact investing doesn’t eliminate traditional investing. They complement each other. Consider, for example, how federal Opportunity Zones are a mash up of a traditional private equity fund, a tax incentive and an impact investment that seeks to cultivate economic development. Data operations in fund administration can help fund managers differentiate the strands in these kinds of rapidly multiplying special cases.

The truth is, fund managers are increasingly pursuing funds that satisfy a wider and more diverse range of investors. There’s an opportunity to partner with them, help influence their success and attain goals that today often go far beyond straight returns. Great technology can be the foundation of that partnership.

Kevin Walkup is Chief Executive Officer of Harmonate, a data services platform for funds.