Searching for Operational Alpha at GAIM Ops West Coast

Business people networking at conference

The term “operational alpha” crept into our industry’s lexicon a couple of years ago. Borrowing a term we use to denote -superior performance above a benchmark, this twist on “alpha” is about improving operational performance by uncovering hidden cost savings and efficiency gains that boost the bottom line. When people in our business hear the term, they get it right away. What they don’t always get is how to achieve it.

My colleague Martin Sreba, Senior Director of Solutions Management recently moderated a panel on this topic at GAIM Ops West Coast, a forum for Global Alternative Investment Managers operations professionals. From listening to the discussion it was clear that operations people are genuinely excited, even passionate, about the opportunity to eke out greater profitability through improved operational performance. Equally fascinating was the variety of techniques firms employ with the goal of finding operational alpha.

Interestingly, it’s not just about increasing automation. It requires pulling all the levers – technology, people and culture – to turn operations departments into alpha-generating machines. One firm, for instance, stimulated dialogue about achieving excellence by bringing in outside speakers– a world champion bridge player, an NCAA fencing coach, a Delta Force leader – who embodies excellence at what they do. The same firm held an “innovation day” to recognize successes in breaking through operational bottlenecks.

Another firm took cues from the high-tech growth companies in which it was investing to learn what they did to accelerate revenue. That led them to take a more disciplined approach to creating a deal pipeline and closing deals more quickly and efficiently, using tools like Salesforce and tracking year-over-year metrics to compare how they are performing at any given time.

Firms are getting more inventive with how they use their own data to tell them how they are performing and where they can improve. One firm created a research database so they could study the factors that led to successful investment decisions – for example, what were the information inputs that led to a decision to buy a particular stock ahead of a 14% gain?

Changing processes is not without its challenges. One panelist noted that it was easier for a newer, “greenfield” firm to build efficiency into its processes right from the start. It’s more difficult for a more established firm with legacy technologies to change its ways, but not impossible. Some firms face the fear among employees that too much efficiency might result in a loss of jobs to robots and algorithms, which can breed skepticism, resistance and inertia. But people who believe there’s a better way will eventually self-select and become champions for change. It comes back to building a culture of collaboration and a team approach to success.

Of course, technology used in-house can be a powerful lever, too, provided firms use it effectively. One panelist expressed surprise that he still sees professionals at similar firms on the street falling back on spreadsheets to do important calculations, instead of taking full advantage of their firm’s investment in new technology; moreover it’s a driver to explore outsourcing.

At SS&C Advent, we get a lot of questions about operational best practices, particularly around outsourcing. Increasingly we are seeing clients opt for some form of co-sourcing, maintaining control over certain processes and letting us handle others. Far from threatening people’s jobs, firms say it empowers operations teams by getting their heads out of the details and giving them oversight responsibility. It’s a great way to gain the perspective needed to uncover opportunities for efficiency improvement and keep pushing toward operational alpha.

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Posted in Traditional and Alternative Asset Management

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