Today, the cloud is an essential tool in the capital markets — that anyone at an investment firm who benefits from its advantages can easily forget.
Cloud drives innovation, agility, digitization, and competitive advantage. Early on, it was fintech technologists that braved the path to the cloud. They led the way, building natively in the cloud, leveraging the low cost, speed, and responsive infrastructure. However, it was the idea-to-revenue that captivated business folks.
Broadly, the speed at which investment firms could analyze new data, stand up new portfolio strategies, and onboard new partners captured the attention of portfolio management, traders, operational, relationship and other non-technical staff at PE, hedge funds, and allocators.
Data insight drives cloud leverage
The ease in which cloud enables data insight is its power for non-techies. Data leverage is a source of tactical and strategic advantage for the front, middle, and back offices. Aside from outsized returns, effective use of data comes up over and over as a key priority for investment firms. Its normalization, storage, timeliness, availability, and delivery redefines the internal efficiency and effectiveness of trading, operations, and business.
Enabling better onboarding
Internal efficiency is one part of the equation. Engagement with counterparties, investors, custodians, administrators, and prime brokers is another. Let’s take onboarding as an example. Onboarding begins any new relationship; it is a critical yet difficult activity.
Onboarding with a service provider is a major pain point for most investment firms. It is costly, manual, slow– with considerable time wasted by all involved with multiple redundant demands. It touches multiple parts of the business as well as market data, trading, compliance, KYC, AML and more. The collection of data for onboarding has little room for error, with potential business, regulatory, and relationship implications. Manual onboarding processes are a source of operational, regulatory, and engagement risk.
There is a high cost to slow onboarding– opportunities missed and resources wasted. Beyond streamlined data and technology, the complexity of the portfolios, trading strategies, asset class diversity, geographic reach, legal and regulatory structures, can delay onboarding. Onboarding statistics are often a closely guarded secret in the fund service provider world. Yet, informal discussions reveal it is not uncommon for even relatively simple funds to wait months to onboard.
Easing friction in the onboarding process would benefit funds and service providers. Yet, the typical data silos which plague most firms, is a drag on the onboarding process. Legacy technology systems, heterogeneous information storage, multiple data formats across teams, across the front, middle, and back-office landscape create bottlenecks and resource drains.
Effective cloud leverage is changing the ease in which data can be accessed, the size of data sets leveraged, and the analytical insights that can be produced. It allows machine learning to solve problems, optimize processes and gain insights that allow for data reuse, and process automation. In short, funds can get access to the tools and services they need more easily and more quickly thanks to the cloud.
Mitigating friction and reactivity in onboarding requires a holistic approach to the lifecycle of onboarding and its many dependencies. It is not something that can easily be created in any technical environment without considerable pre-planning of the onboarding process itself. It requires a proactive mindset architected into your partner service provider with a plan for automation and data leverage, as well its evolution.
At Clear Street, we’re tackling this problem head on. We know that using the latest technology and building directly in the cloud can help us solve complex processes like onboarding, among many others. We are closely watching how other firms are thinking about implementing better tech solutions to streamline cumbersome, but necessary parts of our business and are excited to see how the industry will continue to evolve to improve market access for all investors.