What is the buy-side worrying about?

After chairing a buy-side operations event this week, Virginie O’Shea, founder of Firebrand Research discusses the various ops headaches asset managers are facing, including ‘the purple people eater’…which is explained in more detail.

I had the pleasure of chairing a whole two days of the InvestOps Connect conference just outside of London (in leafy Hertfordshire, to be exact) earlier this week, where chief operating officers (COOs) from a range of different asset managers took time out from their busy schedules to talk about their various ops headaches.

One big topic that will surprise no one at all was the amount of pressure these firms are facing from a third-party provider oversight perspective. Reducing risks from these providers and remaining resilient is top of mind for many.

Regulators, asset owners and auditors are all much more aware of the operational risk and resilience issues that may arise from asset managers being too reliant on a third party that has dependencies on other parties in turn (fourth, fifth, nth party risk, in other words). The Digital Operational Resilience Act (DORA the fintech explorer, as I affectionately call it) isn’t just focused on big banks, the buy-side is equally under pressure to be able to answer awkward questions about what happens in the event of an outage. Being able to unplug from one party and plug and play with another third party is far from simple or cheap, but it may have to be done.

This means that consolidating onto one front to back provider may be less appealing than it once was for some. There was certainly a lot of debate about the topic during numerous sessions. The upshot was that you need to be able to put your provider’s feet to the fire to ensure they have your firm’s best interests at heart. Being a larger asset manager helps in this regard because you are a bigger fish in the pond and thus able to influence decisions. However, smaller fish have the ability to act en masse to effect change, if they can coordinate with each other.

While we’re on that subject, communication is key in so many areas of operations. Speaking to your service providers and vendors regularly to ensure they understand your changing business priorities is extremely important. However, to be able to get that right, you need to communicate internally across silos to identify where lines of business have existing gaps that need filling and processes that need to change from an operational perspective. The operations team is a hub of collecting internal voices, which can get very noisy!

Getting the right skills on the team is therefore of paramount importance. Can your new grads and existing employees effectively communicate with a range of stakeholders? Can they understand the potential and risks of new technologies, new asset classes or new operating models? They don’t have to know all about it ahead of time, they just need to have the ability to pick up that knowledge and run with it. Attitude is much harder to change than skills, which can be learned over time.

Talent seems to be a big topic at every conference right now, as firms in all sectors of the capital markets get to grips with how to attract and retain the “purple people”. That’s people with a combination of business and technology skills.

And it doesn’t have to be new grads. Patience is a virtue in retraining your existing workforce as it takes time for new skills and habits to be learned. Those with a good knowledge of how and why the business has grown into the beast it currently is are central to change management as they can help basic mistakes from being made. They know why that business line uses that particular operational setup and how processes have been adapted over time to meet various business requirements. The purple people might be lurking in your existing teams as well as out in the wider and increasingly busy talent market.

Just watch out for the one eyed, one horned, flying purple people eater…