Choosing to modernize the technology in your investment office involves time, effort, money and the multitude of challenges associated with change. You want to know if the return on your investment (ROI) will be worth it ... we recently corralled three industry experts in a Capital Allocators podcast to discuss this topic, and below are the highlights from each of their perspectives.1. Modernization Delivers up to 14% In Savings
One of the barriers to adopting new technology in the investment office is finding hard facts to make a powerful business case. Ken Akoundi, Founder and Chief Knowledge Officer of Cordatius, LLC, has stepped up to fill this information gap. He discussed his recently-published groundbreaking paper that clarifies exactly how investment office technology modernization delivers value. In the paper, he approaches the question of “Is it worth it?” from several perspectives to show how modernization increases quality, efficiency, costs, and more.
To get down to dollars and cents, Akoundi created a robust model based on a realistic investment office. He factored in assets under management (AUM), staff and salaries, standard tasks and the time spent on them, and other considerations. He then assessed the ROI of typical use cases such as establishing a data warehouse to create a single source of truth, streamlining data processes, and automating tasks like loading documents or finding files. The model shows that the total savings from modernization could be up to 14% of the annual payroll.2. Modernization Enhances Productivity
Chad Erwin, Senior Vice President, Asset Owners, Backstop Solutions Group, observed that most investment institutions are “data-heavy and team-lean.” He shared one of the consequences of this pervasive situation, which was revealed in shocking clarity in a joint study Backstop did with Mercer in 2020. The report states, “We discovered that institutional investors spend approximately 30% of their time on tasks that not only do not add value to the investment process, but also could be automated or streamlined with better technology.”
Technology can dramatically improve productivity by making data easy to access, easy to locate, and easy to use. Automation and process optimization free up investment team members to concentrate on the high-value activities that are their core focus. For example, Backstop did a further study that showed how automation can give back 94 out of every 100 minutes that is now spent managing due diligence documents.3. Modernization Improves Investment Outcomes
Ashby Monk, Executive Director & Research Director, Global Projects Center, Stanford University, is very focused on the asset owner community. From his work with pension funds, endowments, foundations, and other investment offices, he noted that he has seen profound changes in the way investors think and build their portfolios thanks to technology. This, in turn, drives improved outcomes. He described a pension fund that had significant diversification simply because they could not get a firm understanding of what different scenarios in the future might do to their liabilities. In a way, diversification served as a “crutch” - of sorts - to compensate for poor technology, according to Monk. Better technology enabled the pension fund to reduce the amount of cash they were holding as well as the number of managers they relied on, fundamentally improving the return profile of the entire fund.
Monk explained, “In all of these cases, the insight for me is that if you can get data inside these organizations – all kinds of data – you further clarify where your portfolio is today and your understanding of that portfolio. If you can understand where you are, then you can have different options available on where you're going. That true transparency, I find, is the impetus for change, and that is going to help you choose a path forward that is best for your stakeholders. And I hope that also results in longer-term investment decisions that are more sustainable, more resilient, and ideally better for the world.”
Each of the three panelists – Ken Akoundi, Chad Erwin, and Ashby Monk – were in complete alignment throughout the podcast: modernizing technology brings a wealth of benefits to investment offices. For additional insights, watch the Capital Allocators podcast “The ROI of Modernizing the Investment Office” today.