Increasingly complex portfolios mean the need for more third-party providers, says Schroders COO

Increasingly complicated portfolios require more third-party providers including prime brokers, swaps providers and banks, says COO.

By Jonathan Watkins

The chief operating officer of Schroders has said that increasingly complicated portfolios require more third-party providers including prime brokers, swaps providers and banks.

Speaking at the InvestOps conference in London, John Marsland, chief operating officer at Schroder Investment Management, said that emergence of global portfolios outside of traditional equities and fixed income strategies are creating challenges for the operations arms of asset managers.

He added that it has become a “very complex investment operations process.”

‘We’re building more and more complicated portfolios and many of them need different things from before,” said Marsland. “Newer portfolios tend to be global and have esoteric assets within them, and that in turn creates complexity, particularly in cash management.

“Increasingly, there are portfolios so complicated that what we are talking about is a complex manufacturing process, where the rules need to be interpreted at different stages of the investment process in order to deliver a high-quality product. In some of the work we have done we’ve found that Schroders has well over 30,000 different compliance rules on its platform.

“How do we deal with that? That investment complexity has meant that we need to deal with different third parties.”

Marsland said this isn’t just engagement with custodians but other third parties are involved, such as prime brokers, swaps providers, and banks providers.

He added that the information asset managers need to run a portfolio is required further upstream in the investment process. He used the example of the investment book of record where asset managers need to know with absolute certainty what is in their portfolio each day with these complex strategies.

Marsland said the process needs to be less challenging, given that if you don’t have the right information you can be liable for it.

In his keynote speech, Marsland highlighted multiple other operational challenges facing the buy-side. These included data, technology and the changing skills in the industry.

“With data, the real challenges are around the governance, good quality ownership and the ability to transform that data for different needs,” the Schroders COO added.

“If you look at the trading world, the FIX standards have encouraged a diversity of trading tools out there. Could be the case further down operating model where the standards are there. Then we need to apply technology to this solution. You need to be careful you are not automating bad processes.”