Olmstead Blog

Performing robust due diligence when searching for an outsourcing partner may someday go from a best practice to a regulatory requirement. This past November, the SEC proposed an outsourcing due diligence rule that would expand 17 CFR Parts 275 and 279 to regulate outsourcing initiatives carried out by investment advisers.  

The markets have been tumultuous these last few years, and this whirlwind of volatility has hastened the need for change, driving the upcoming move to T+1 settlement. Equities, corporate debt, and unit investment trusts in the U.S. will move to a T+1 cycle on May 28, 2024. Canada is following suit; they intend to align the timing of a move to T+1 with the United States. No other global markets plan to make the change at this time, although some are considering it for the future. 

Ignites recently reported that the number of fund companies reporting net asset value errors increased by 29% in 2022 compared to 2021, with 129 of those funds requiring NAV restatements. Turnover and complexity were primarily pointed to as the causes, compounded by higher market volatility yielding errors more material than in times of lower volatility.But the lurking problem behind what the article raises is repeated failures of the NAV control environment. 

An operating model that once worked brilliantly ten or even five years ago may no longer be producing the best results for your organization today. As the asset management environment changes over time -- more complexity in asset and transaction types, cost pressures, regulatory changes -- the op model must continue to evolve. Moreover, the pandemic underscored that change doesn’t always come with an advance warning. The status quo can shift in an instant, and last year served as a test of the vitality of firms’ op models, exposing and exacerbating preexisting weaknesses.

It may seem that it’s never the right time for a review; firms today are knee-deep in the daily grind. But now that the pandemic’s dust has finally begun settling, it’s time to dig out in order to spend some time today to benefit tomorrow…and prepare for whatever may be next. So here we’re exploring 4 key triggers to initiate an operating model review.

The latest evolution of front-to-back outsourcing is here: A new solution to the age-old problem of data management. These offerings bring a critical new class of service to front-to-back offerings and will certainly raise the bar; the service provider will assume accountability and must get it right.

• Will service providers realize the same level of success when extending their data capabilities to clients?
• Where will the lines be drawn between the provider and the manager, what infrastructure needs to stay behind?

Only time will tell the answer to these questions, but while this evolving service model seems poised for success in solving the “data left at the doorstep” dilemma, the devil lies in the details of execution.