Lonnie Macdonald, UMB Fund Services

Data warehousing the key to multiple technology conundrum

Interview with Lonnie Macdonald, UMB Fund Services – “I get RFPs from clients all the time for complete middle-office services,” comments Lonnie Macdonald, president of JD Clark & Company, the hedge fund administration arm of UMB Fund Services. “We need to be there to deliver them.”

In recent times, there’s been a concerted effort by fund administrators to increase their value proposition by delivering a wider range of services, not just in traditional back-office areas but also in the middle-office space.

According to Macdonald, this is driven by investment advisers and their clients wanting better access to high-quality data – which in turn presents a unique technology challenge. Administrators have to demonstrate their ability to create ad hoc reports when clients need them, often using a patchwork quilt of technologies.

“What you need is a data warehouse that these different technologies can plug into, and then you can pull the relevant data into a web portal,” Macdonald says. “Typically, these systems won’t talk to each other, but they will talk to a data warehouse.

“You have to look at the best way to bring all of that data together in a cohesive fashion so that it can be accessed and interpreted by clients” – particularly important when data is increasingly accessed through mobile devices such as iPads and other tablets.

Macdonald thinks there are several reasons why investment advisers have become more dependent on fund administrators. “First, transparency: both advisers and investors want to understand what’s driving portfolio performance (or not),” he says.

“Second is a shift in managers’ mentality. They want to remove anything that isn’t part of the investment process and outsource middle- and back-office functions. It doesn’t make sense to hire people and buy the technology when they can step outside and use a third party.

“Thirdly, the markets now are more complex. Regulation has tightened. Managers are trading a dizzying array of instruments. What were once global markets now feel like local markets. Finally, specialisation is driving change. People are focusing more on strategies in which they feel comfortable delivering alpha.”

How is UMB Fund Services reacting to these new demands? Establishing a data warehouse to support different technologies has been one major step, but Macdonald enumerates a number of other developments over the past 12 months.

“We’ve built proprietary technology for our investor servicing and general ledger platform, called FastPro, and recently, we’ve brought that platform up to speed to deliver more reports with the additional information that investors are asking for. We’ve also been integrating our systems with Advent Geneva, which we bought 18 months ago because of the complexity of instruments our clients are now trading.

“We’ve also built a custom transfer agency platform for '40 Act alternative funds, which went live at the start of the summer, with SunGard. They developed our existing mutual fund transfer agency platform, but it wasn’t set up to handle the levels of subscription documents in registered alternative funds.”

The next big project is to build out a full service middle-office platform for all fund structures – which Macdonald, mindful of the need for different technologies to connect seamlessly with the data warehouse model, estimates will cost millions of dollars.

“Middle office is constantly improving as technologies continue to evolve. We can’t say exactly how much it will cost to deliver; it requires a more fluid approach. Once managers have executed front-office functions, we want to be in a position to help them from that point onward.”

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