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Asset Management: are there risks on the road to recovery?

Renewed growth in the asset management industry has led to the discovery of a latent problem. Rising volumes, operational complexity and demanding regulatory compliance requirements can expose weaknesses in key processes and controls when it comes to the handling of client monies, valuation of client assets and the management of liquidity. This is a problem that could slow an institution’s ability to profit when there is an increase in investor demand and a renewed appetite for making investments.

Regardless of investment philosophy and strategy, regulatory scrutiny and recent high-profile failures of management oversight are putting pressure on COOs and CEOs to ensure they have full transparency into and control of their front and middle office are processing. Asset managers who widen their range of investment techniques, instruments or significantly grow their assets need to be able to demonstrate adequate expertise, appropriate operating processes and proper risk controls. Fundamentally, they need to ensure that their firms possess the requisite systems, IT Infrastructure, controls and capital to manage the investment strategies offered to their clients.

But this best practice isn’t always happening. Recent high profile systems and controls failings in the asset management industry reveal serious weaknesses in several firms’ procedures, management systems and internal controls.
Despite cutting-edge technology being available to curb breaches of trading limits and extensive monitoring employed by some buy-side and sell-side institutions, the balance of front office efficiency and control is often tipped in favour of profit, putting firms at risk.
It is often said that trust is the hardest thing to gain but the easiest to lose. The fund management industry has experienced the hard truth of this statement over the past few years. Clearly, rebuilding investor confidence shaken by some of these recent events is key to long-term growth and prosperity for asset managers and their clients. As such, transparent, documented, well-supervised investment processes and systems can go a long way to ensuring a firm’s high standing and reputation remains that way with regulators and investors.


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