Transforming the Operating Model
June 2022
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One crucial investment-management decision – which assets to manage in-house and which to manage externally – has outsized implications for operating model design. The promise of new technologies, the value of better data management and the need for resiliency and cybersecurity also give institutions further reasons to reimagine how their front, middle and back offices operate.
— Public Pension Fund
— Sovereign Wealth Fund
Source: BNY Mellon/OMFIF operating model survey
Surveyed public asset owners’ top concerns are streamlining processes and improving efficiency across the board. But addressing these challenges requires them to undertake operating model transformation. While each transformation, like each institution, is unique, we can group institutions into two broad buckets.
The front office needs to operate efficiently and effectively, with a fundamental focus on investment performance. The key improvements depend on whether the public asset owner relies on external or internal managers or a combination.
For the middle office, the most common approach to streamlining and improving efficiency is to deploy technologies such as robotics or AI for targeted pain points such as reconciliation. Several mid-sized institutions interviewed use robotics solutions. However, automation is not necessarily a panacea. Entering new markets or asset classes and continued industry evolution are already stretching the ability of many institutions to address their middle-office challenges through automation. As a result, institutions consider outsourcing activities to those specialists that can bring scale, efficiency and continuous investments in innovation.
Public asset owners typically delegate their back office to custodians, with central banks, public pension funds and sovereign wealth funds uniformly highlighting custodian responsiveness as their greatest challenge. Still, most institutions appear wedded to their existing arrangements, with just 14% of survey respondents planning a change in the next three years.
Asset Servicing Global Disclosure
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