Rapid reconciliation in modern investment operations

The central tenet of automating investment ops lies in replacing as many manual, error-prone tasks with streamlined, repeatable processes as possible. In reconciliation, data can be in different formats or at different levels of granularity, making matching difficult. Plus, if using manual reconciliation processes, you have a high chance of duplicated efforts and human errors, like fat fingering a decimal point mistake that can cascade into bad analyses all over the firm.

Automated solutions offer deep granularity for efficient root cause identification and configurable matching logic across diverse data types and counterparties. Instead of a traditional "N-way reconciliation" approach, which can lead to a loss of detail by forcing data to the lowest level of granularity, especially for complex instruments, end-to-end ops platforms like our Opterra platform reconcile individual components.

Opterra includes multiple types of reconciliations tailored for specific asset classes and an "any versus any" catch-all. This allows for the efficiency of multiple reconciliations all at once without losing crucial detail. Fixing an error in the central source corrects it for all related reconciliations. Modern reconciliation tools enable reconciliation of not only line items but also their individual components. This is crucial for complex asset classes like derivatives. Really, the type of data doesn’t matter.

Moreover, AI tools can connect to all necessary data platforms, download a full report, and provide transparent disclosure of where the numbers originate.ⁱ Faster, automated reconciliation allows firms to close their books more quickly, whether it's for a daily, monthly, or quarterly NAVs. However, in the T+1 era and the coming T+0 era, data reconciliation will need to happen in real-time to flag and resolve discrepancies.

Streamlining trade processing in T+1 and T+0 eras

Legacy infrastructure has trouble keeping pace with today’s accelerating settlement timings. I recently noted in an article that the US T+1 migration’s “shorter settlement window exposed a deep technology divide” and made the limitations of legacy technology that much more acute.

Manual affirmations, batch systems, and error-prone corporate action processing increase operational costs and raise counterparty risk. Aside from real-time reconciliations, automated corporate actions and straight-through-processing can contribute to efficiencies in trade processing. Automated updates ensure positions and entitlements are processed accurately, often the night before ex-date. Positions and balances are updated continuously without manual adjustments. This is what investment ops efficiency and management optimization looks like.

Liquidity management across public and private markets

A contemporary investment ops system, above all, provides cohesion between the traditional front-, middle- and back-office functions. It understands and supports the interdependency of systems and processes, creating value-added optimizations for each department. The public-private asset-class convergence has caused some vexing headaches for liquidity management. As more private market investments swirl into the portfolios, firms must find ways to precisely track liquidity and execute accurate valuations; and it needs to be done not just once a quarter, but constantly. It’s in everybody’s interest to see into opaque asset classes.

A recent global survey of GPs revealed that LPs are “demanding stronger benchmarking, risk attribution and reporting from their GPs.” GPs with more than $5 billion AUM said that managing investor expectations and reporting requirements was their top challenge, neck and neck with challenges in fundraising.ⁱⁱ Optimized capital efficiency and liquidity risk management are paramount.

Firms have an urgent need for fluid responsiveness in cash management to be able to jump on tactical opportunities. As my colleague put it, “Those that recognize cash management as a performance lever will gain an edge over those who still consider it a perfunctory task.” For example, missing money market fund (MMF) cut-offs mean you miss out on same-day yield and have idle capital overnight. Opterra optimizes the cash sweep function across all accounts and currencies, replacing the manual reconciliation and determination of how much cash to invest.