Middle-office is the new religion because, post-GFC, fiduciary responsibility cannot be outsourced, says DST Global Solutions’ Stephen McGovern. “Before the GFC, people were relying too much on outside providers,” says McGovern who is global head of DST’s managed services platform. “Before the GFC, people felt their responsibility was to set guidelines, oversee the fund, and get the best returns. Post-GFC, the responsibility is to get more information and provide more information, more analytical capability.
McGovern gives the example of a very large US fund which had more than 50 different investment managers but did not know how exposed it was to Venezuela. “Middle-office is the opportunity to address that issue, to get more information and provide more information,” he says. “It’s not that it wasn’t being done before, but it now has to be a systematic approach. When the returns were good, it was not as important … now it’s crucial.” McGovern has, for the past two years, been transforming DST from a product-based company to one more focussed on delivering solutions which “meet the most pressing needs of the asset management industry”, he says.
“There’s no one-size-fits-all, and all our clients have different priorities,” says McGovern. “You don’t try to boil the ocean,” he says, meaning DST does not try to be all things to all customers. Part of DST’s makeover has been the launch of the Middle Office Platform [MOP] which McGovern is confident can help clients’ faith in asset managers. The GFC did more than wipe out trillions of dollars of wealth: it robbed investors of their trust in the industry, he says.
In addition to the GFC, four other trends have complicated asset managers’ ability to meet the middle-office challenge: globalisation, outsourcing, workforce deskilling, and client and regulatory demands. In gearing-up for post-GFC, post-Cooper, McGovern says firms must do four reviews to ensure “they’re in the same position in the future as Jim Vos, of Aksia, was to recognise the next Madoff ”. • Evaluate current data architecture supporting the middle office • Review analytical capabilities • Review reporting capabilities • Review internal operational processes.