Having signed with Calastone in April 2011 for order routing services, Ruffer LLP has since made it a priority to automate trade processing as much as possible.
Founded in 1994, Ruffer provides a discretionary portfolio management service as well as managing a range of funds. Ruffer has a distinctive investment approach in that it invests with the objective of protecting and growing its clients’ capital by generating consistent positive returns, rather than with reference to any particular index or benchmark. Total assets managed by the firm now exceed £18 billion, with over 240 staff based in London, Hong Kong and Edinburgh.
Ruffer wanted to improve processing efficiencies with trade instructions to custodians and reduce any risks associated with the process. Ruffer worked with Calastone to create a Trade Notification process allowing Ruffer to achieve its goal of complete straight-through processing (STP) for all possible trades, resulting in a reduction of risk coupled with a substantial increase in processing speeds.
The challenge: risk reduction
Ruffer has 6,700 clients who in turn have 12,000 portfolios. Trading only once per week for the Ruffer managed UCITS, the trading instructions sent to custodians were quite concentrated, creating a workflow bottleneck for the whole process. The amount of effort deployed managing this process was considerable, with employees required to manipulate and upload data from spreadsheets and more staff required to verify the instructions. Due to the manual nature of these tasks there was always a risk of error. Further delays from the transfer agents dealing with the transaction files meant additional time was added to the process. This delayed receipt of settlement proceeds if contractual settlement agreements with custodians were not in place. Due to this potential variation in settlement times, the Ruffer Front Office team had to take extra care to ensure they didn’t use cash proceeds that were not actually settled.
The solution: go where the data is
Whilst there was another service available which offered SWIFT messaging to custody, the addition of another platform would have caused a needless steps in terms of transferring information between two separate systems. Given that Calastone was handling all the critical information in the first instance and a close working relationship was already in place, it was a logical step to approach Calastone to create SWIFT messages to the custodian on behalf of Ruffer. For Ruffer that meant an immediate reduction in the time spent processing the majority of their collectives trading. It also meant that the SWIFT message was now sent out as soon as the transfer agent had confirmed the trade, delivering a secure transaction out to custodians. Martyn Cane, Operations Processing Manager at Ruffer, commented, “By processing trades through Calastone, the automation of trade notification to the custodian was a logical next step. Fund managers, especially smaller houses, don’t want to waste man-hours on sending faxes to their custodians, and most are not in a position to build a solution themselves. Calastone provides a one-stop shop which will take care of all of the messaging without firms having to worry about it.”
On-boarding and implementation process
“From our perspective, the on-boarding and implementation process was fairly seamless,” said Cane. “Calastone organised testing with the custodian, and we were just copied in on e-mail and the final sign-off. “
Calastone worked closely with Ruffer in order to determine the operating model and engaged with every one of the custodians so as to agree upon message formats. Development was then conducted to build a static data table, screens in the Execution Management System (EMS) and a messaging link to custodians. After Calastone had run through ‘user acceptance testing’ with each of the custodians, the trade notification system was subsequently rolled out in production.
“Calastone’s operations team are extremely helpful and knowledgeable,” Cane continued. “They are on the ball and know what they’re doing. Every single time we’ve asked for their help they have been on the case straight away.”
Delivering a reduction of man-hours and increased processing speeds
For Ruffer, the automation of the trade notification process has most benefited the firm with regards to risk reduction. “No human has touched that data, so it is pure in terms of human error,” explained Cane. We have saved over 15 hours a week in processing time. Efficiency gains have also been realised in that the speed in which the instruction is sent to custody is within seconds of the trade being completed. This efficiency has a knock-on effect in reducing risk in terms of positions because the front-office are aware of projected cash balances in real-time. Cane commented, “This goes back to our overriding objective of trying to get everything as low-touch as possible at Ruffer. I want the front-office to simply click a button and then not have anything further to do with the trade. We are proud to say that our trades now are at about a 95% STP rate.”
A partnership for future challenges
Through the implementation of automation, Ruffer estimates that its capacity to take on more trades has doubled over the past six years. For the future, Ruffer is looking forward to exploring the possibility of developing messaging with Calastone for switch functionality of share classes.
Cane remarked that what he finds great about working with Calastone is the fact both Ruffer and Calastone started out as fairly small firms, growing at a similar rate as they both took on new business and challenges. “We have such a great partnership,” Cane continued. “One of the things we pride ourselves for at Ruffer is going the extra mile in client service, and Calastone does the same thing.”