APG transforms global operating model for better portfolio management
The asset management industry has been going through extraordinary changes over the past decade. Firms have been rapidly adapting their business models to meet the needs of their clients at the same time as expanding on a global scale.
Through an era of mergers and acquisitions, many firms have found themselves managing multiple legacy platforms which can create silos and inhibit work culture. Firms take different approaches to solve these issues, which can range from outsourcing their business model transformation to creating streamlined single platforms.
At the AsianInvestor’s COO Virtual Forum, a panel of asset managers and owners shared how they are taking control of the digital transformation process.
Asset manager Invesco is currently in the midst of outsourcing its back and middle office functions to better serve its clients across its global business. Cliff Bullock, regional head of operations in Asia Pacific at Invesco discussed the conditions on which the company decided to migrate its legacy systems to a unified provider.
As a global company which has grown organically over the years, Invesco made the decision to conduct a firm-wide review of its multiple systems. This ultimately highlighted some common problems, namely duplicate systems, redundant processes and manual intervention required to rekey data as it moved from platform to platform.
“Data is key obviously, and we had data silos in our decentralized model, so there was an opportunity to enhance data governance,” said Bullock. “That led us very quickly to moving forwards and the solution is not just about platform transformation, but it’s a transformation of the whole ecosystem back to front.”
By unifying the multiple platforms into one single streamlined one, the obvious benefit, according to Bullock, is Invesco’s ability to scale rapidly and increase its capacity in the overall ecosystem.
“It enables us to move new instruments, new products or complex client solutions to market much faster,” he said.
The second major benefit of the incoming new system will be its overall simplification, lowering the complexity and risk that is embedded in Invesco’s current system.
“It will enable us to connect all our front office, middle office and back-office services together. And it helps us rationalize several technological applications across the whole organization, radically simplifying our environment.”
With all these benefits to be gained, Bullock highlighted that the firm must remain focused on the business continuity and plan carefully throughout the transformation as a priority.
“Running such a transformation program across many countries is problematic, without a doubt, and one of the things that we're striving for is that we create the very least amount of disruption possible to the existing business and key to that is causing the least amount of disruption to our clients.”
PORTFOLIO MANAGEMENT NOT CLIENTS
APG is a Dutch pension investment company based in the Netherlands which manages over $680 billion in assets on behalf of its nearly 5 million Dutch pension participants. While the fund has been expanding its portfolio in the APAC region, it does not have any clients outside of the Netherlands and is seeking a different kind of utility from its platform.
APG’s business is all about finding investment returns at reasonable cost, and the fund is often making decisions on what portion of these investments it can do itself, and what it can outsource.
“We have this model where we do have some external managers, but around 80% of our assets are being managed in house, and to that extent — next to having offices in Holland — we've got offices in New York, Hong Kong, and recently we set up shop in Beijing, Shanghai and we're going to set up shop in Singapore,” said Genio Vander Schaft, chief operating officer, APG Investments Asia.
In comparison to Invesco’s decentralised model, APG focuses its investments and trading in APAC through a very centralised model controlled at its base in Holland, which is supported by several thin layered platforms across its many outposts.
“However, there are certain things that we might want to do in the region, like take advantage of shorter settlement cycles, and because of time differences between Asia and our head office we need to think how to go about it.
"So what we're trying to do is to leverage operators in the region such as custodians and sub-custodians, because we don't want to grow the back office here,” said Schaft.
As a part of its the growth strategy, APG has now been in Hong Kong for more than 15 years and has expanded its headcount from 20 to 100 people in that time.
“That was because we started shifting investment strategies to this region. We wanted our own people to manage our strategies ourselves. As part of that, we then decided that we wanted to have the entire global emerging market equity team in this office, which meant we also had to deal with Latin America, Eastern Europe from here,” said Schaft.
“We could do all that and not lose any sleep, because we could leverage the back office in Holland which allowed us to take on the portfolio managers and do the trading here. The model is fairly flexible, and basically suits our purposes as it's focused on portfolio management trading and not on regional clients.”
The key to APG’s success in Apac, according to Schaft, lies in managing the relationship between its activities in the region and its head office in the Netherlands. Schaft said this could sometimes be a challenge.
‘It's quite a big organization and we only have a few offices abroad, so it's also a bit of a Dutch-centric organisation. What we eventually did was set up a ‘buddy system’, where the relevant departments in different outposts could communicate with their counterparts in head office and can maintain an understanding of what is required of them,” said Schaft.
“We introduced that system about a year ago, and I must say it has really improved the relationship between the Hong Kong office and the head organisation that we rely on.”