This is a question many in the funds industry are asking. There is a general sense of frustration at the protracted processes that make payments. Whether it is the micro impact of continual delays and errors or the macro reputational damage that be incurred with partners across the value chain.
Behind the top-line question is a succession of other questions: How do I put a lid on costs, reduce prefunding needs or intraday overdrafts, cut out mistakes and get more certainty on the timing of payments?
How do I get scalability? How do I deal with a sudden surge in redemptions? How do I plan for growth? Several firms report that every increase in trading volumes tends to demand an increase in operations staff in order to cope. That comes with increased training and checking. There must be a way to get off the treadmill.
For investors, how do I grow my portfolio and ensure my investment is funded promptly on T? For investment managers, how can I manage my funding and improve investors experience?
The old ways are not the best
Most of the above issues are solvable. The answer lies in more automation.
While trade processes and order routing between distributors, fund managers and registries have largely been automated through Calastone, payments and settlements remain a hands-on business within most firms.
Once the trade confirmation comes back, there are reconciliations to do, settlement amounts to be calculated (and double-checked), payments to be uploaded, and finally payments authorised. Any discrepancy in matching trades to payments has to be investigated and negotiated with all affected parties.
Manual processing predominates
This is painstaking work. It is nearly all done manually, with a lot of rekeying. And when it comes to making the actual payments. Late cash settlements are by no means rare and can prove expensive.
A survey we conducted two years ago involving fund managers and distributors in the UK, Europe, Australasia and Asia focused on the many issues firms face – and some of the answers to dealing with them.
It highlighted fragmented processes, data input errors, processing delays and a lack of real-time visibility over what was happening in the settlements and payments processes. It pointed, too, to a number of knock-on effects from the need to allocate teams to resolving queries to missing the intended trade date liquidity issues or, worse still, making good on a good value claim.
Automation is the answer The same survey demonstrated a hunger for more automation, both within and between firms. In other words, what the industry sorely needs is a digital solution in settlements and payments