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The ultimate litmus test for manager BCPs

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By A Paris – Business continuity plans are not generally lauded and many are often relegated to a proverbial dusty shelf while still remaining an important element of a business. The Covid-19 crisis has however thrown fund manager BCPs into the foreground and put them to the ultimate test. This baptism of fire has also caused some to re-evaluate their mode of working, with flexible working options, less travel and more video conferencing likely to form part of firms’ modus operandi going forward.

The sudden shift to remote working has seen groups with a robust digital infrastructure manage the transition successfully. One such firm is Metori Capital Management. “When we founded Metori three years ago we made the strong choice not to depend on any physical infrastructure,” explains Laurent Le Saint, Managing Partner & Head of Development at Metori, “We use virtual machines as everything is cloud-based and therefore we can operate everything on the fund management side from the outside.”

This set up was well tested over the past three years and the full BCP was set in motion when the crisis hit in March. As a result, all aspects of the Metori business, from fund management and business operations to research and client activity, have continued to work normally, says Le Saint.

Many firms have successfully transitioned to a work-from-home model. GAM is another example. Charles Naylor, head of communications and investor relations comments: “We all have remote access and have been working from home without any operational issues since the middle of March.”

At Fidelity, the shift has also been smooth. A spokesperson says: “We have successfully implemented working from home arrangements globally across all functions, this includes members of the portfolio management team, trading and operations who are all set up to work from home.”

In fact, George Ralph, managing director at RFA notes: “I can’t think of a client that hasn’t adapted to the situation quickly and with minimal fuss. From the first conversations we had with clients, proposing that we increase their capacity for remote working, when we initially heard about Covid-19 across Asia, the transition has gone very smoothly, pre planning really helped here.”

This sentiment is supported by others who have a broad view of the industry. Jack Inglis, CEO of the Alternative Investment Management Association, outlines: “The last four to five weeks have seen asset management businesses switch to remote working and, in most instances as confirmed by our manager members, business continuity and disaster recovery plans have been seamlessly activated. Investor relations teams are transposing in-person meetings to on-line conferences or calls, and regular reporting continues, or is being enhanced, to ensure that investors feel connected and informed with what is happening to their money during this unprecedented time.”

Bhushan Sethi, Julien Courbe and Julia Lamm of PwC also comment on how the financial services industry has reacted to this crisis: “An entire industry has reconfigured itself in weeks. Calls are still being answered. Funds are still being traded — in fact, at record levels. Claims are being paid… Yes, there have been rough patches, and there will be more. But unlike the crisis of 2008-9, the financial services industry is proving itself to be remarkably resilient, and many view it as part of the solution.”

And one of the foundation elements for this resilience lies in an iron-cast BCP.

Le Saint outlines the importance of a such a plan for smaller businesses like Metori: “We are a mid-sized company, with 12 members of staff, running USD600 million in assets. But we take advantage of Microsoft Azure’s huge cloud infrastructure.

“For a firm like ours everything is critical; nothing can stop because no one is going to replace us. So we needed to make sure, from the outset, that if our site is not accessible we could continue to run the funds normally.”

Having had a full blown live test of fund managers’ BCPs, Jack Seibald, managing director and global co-head of prime brokerage & outsourced trading at Cowen explains the crisis has, in some cases, expedited a revision of these plans: “Our clients are reevaluating their BCPs and the capabilities they will require to maintain a credible business operation in the event of another crises. This is being motivated by a need to ensure continuity, and perhaps as importantly, to be able to pass a thorough ODD exam by prospective investors.”

Peter Kulczycki. Head of Risk, Europe & Asia Pacific at Nuveen comments: “We’ve learnt a few lessons along the way about the choices we made about our technological scalability and the way we interact with people remotely. I don’t think any firm would be well advised to sit on its BCP and not change anything. Review is always healthy and Covid 19 is a great example of something which teaches you what works and what doesn’t within a BCP.”

According to Seibald: “The primary issues they need to solve for are location and connectivity, though much more so the latter than the former. With the technology solutions available, fund managers can have access to their files and their portfolio management tools from anywhere, so long as they have the proper equipment and connectivity in place.”

GAM had no issues adapting to working from home, but the experience has led to a re-evaluation of sorts. Naylor says: “Working from home has proved to be a positive experience for GAM. It has given us good insight so that flexible working will be part of our working pattern in the future.”

Future changes

Video calls have become part of daily life as a result of this crisis and some belief this technology has helped improve efficiency. “I’ve been travelling all over the world while staying at home which is very efficient,” muses Le Saint, “Yesterday I had meetings in Netherlands, Germany, Canada and the US. This would have not been possible face-to-face.”

La Saint believes Metori will continue to use video calls to interact with clients: “We are changing the way we interact with each other.”

Kulczyki of Nuveen also discusses the way modes of working are changing: “Covid-19 is teaching us is that there are other ways of working which we perhaps didn’t contemplate as part of normality before. We can accomplish more remotely than we previously anticipated. So in a sense we have found a new way of working which can complement our traditional habits.”

Inglis of Aima says: “We are hearing that the operational due diligence community are converting on-site meetings to video conferences. According to a report issued by Alpine Capital Advisors, 41% of their LP contacts would be willing to invest with a manager without meeting them in person if lockdown extends to beyond three months. Investor relations teams that know their clients will be able to navigate these opportunities with finesse and judgement to avoid any accusations of gaining advantage at the expense of others.”

The technology facilitating this adaptation has been a lifeline to fund management businesses, helping to keep their client communications dynamic and transparent. However, they must remain aware of the potential added risk such tools can bring.

In an article, Louis Bruno, Principal at EisnerAmper warns: “Investors and advisers are adopting new ways of working and many may initiate communications outside of normal channels, e.g., by email, video chat, text, or mobile chat apps, etc. that are typically not monitored. This opens firms to significant risks related to the distribution of material non-public information, insider trading, lack of post-trade records, and unapproved marketing messages.” He adds that firms must have the means to monitor communications and also offer staff training in their efforts to mitigate these risks.

Ralph at RFA also underlines the importance of training: “The key advice and training has all been around securing their home networks, being more vigilant for cyber-attacks (specifically phishing) and insider threats.”

Collaboration and boosting morale

In its response about its business continuity efforts in the face of Covid-19, Franklin Templeton stresses: “Collaboration continues to be a key part of our day-to-day operations. We are using various types of collaboration software so that our employees can work together in real time and use video conferencing and messaging to maintain personal connections.”

According to Naylor at GAM working digitally has been productive and improved collaboration across the firm: “When working in an office, you sometimes only interact with the people around you. In the current situation however, you have to think about who you need to talk to and reach out to them. So as a result, I would say our communication got stronger.”

One challenge some identify is ensuring staff morale is kept buoyant. Naylor notes: “We as GAM are very conscience of the well-being side of the matter. We are making sure employees have proper training about how to work productively. For example, we’re conducting a series of seminars on how to thrive in this environment and strike the right balance between work and home life.”

Law firm McCann FitzGerald drew up a guide on boosting employee moral and wellbeing during Covid-19. They write: “As a result of recent developments and with an increase in remote working and government requests for individuals to social distance, employee morale is rapidly declining. Many employees face new challenges and may find themselves overwhelmed with the change to their normal routine, which stems from a variety of factors including remote working, children being home and general uncertainty and worry.”

The guide recommends keeping employees informed, promoting work-life balance and asking for feedback. McCann FitzGerald’s document also suggests firms introduce employee recognition and awards and assistance programmes. It further highlights the importance of being flexible and empathetic. 

Another aspect of employee collaboration centers around firms trying to find a way of encouraging informal dialogue among colleagues, to motivate creativity. Le Saint expands on this: “Within our firm there is a lot of development which is facilitated by the informal discussions between people at the office. Since this cannot happen, we need to make sure we continue talking to each other as much as possible to keep that informal sharing of information among us.”

Tom Woollard, Managing Partner & Head of Europe, Edge Technology Group applauds the use of these tools but advises caution: “During this period there has been a significant overcompensating of conferencing and collaboration tools. As good as such tools are, some find themselves to be overusing them in an effort to get back the sense of collaboration, cohesion, and team unity that are naturally achieved via the regular soft touch points you would typically have with colleagues when working together in a central location. This social interaction is a large contributor to your identify and culture as a firm and as a team, and many are looking to replicate that through the use of conferencing and collaboration tools, often at the detriment of our tangible work.”

Although one needs to strike a balance, the importance of human interaction is crucial. PWC’s Covid-19 Navigator survey finds 67% believe human interaction is necessary in delivery financial products and services. So, despite the broad digitisation, people remain a key cog in the financial services machine.

Key decisions

Throughout this crisis, managers have had to make some key decisions to make sure their business survives. On an operational dimension, these crucial choices mainly revolved around remote access operability and collaboration. Woollard comments: “With the work force so broadly dispersed and for such a long period of time, decision-makers are most commonly looking at two things. The first is how to improve the current remote working solution so that it can enable the workforce to be as productive as possible. The second is focused on collaboration; trying to map out how the firm can continue to work collectively, in teams and remotely, while delivering the same results as before.”

Although some elements of remote working were incorporated into firm BCPs, the extent to which this was going to happen was unprecedented. Seibald at Cowen says: “While many who work in the investment management business had worked from home on occasion, for the most part this was done with tools that were meant to be temporary solutions, not permanent ones.

“The notion that everyone would be working from home for an extended period of time was never truly contemplated in BCPs. However, the experience over the past two months has taught us that, with the right tools, it can be an essential, and perhaps more practical and cost effective, element of BCPs going forward.”

Kulczycki, at Nuveen points out that the main decision point the firm is facing now relates to when and how staff can return to their offices: “Within our incident management group, which is the hub of activity for business continuity, and we’ve established a Back to Office project. The most pertinent issues, from a business continuity perspective are, what conditions will allow us to return to the office and the more complicated one relates to the logistics of how this will happen.”

At Fidelity, a spokeperson says: “The vast majority of our employees continue to work from home. We are taking a very cautious approach to any easing of lockdown around the countries we operate in. While a large majority of our Asia workforce is still working remotely, we have slowly moved some employees back to work in certain locations. Clear social distancing guidelines are being followed along with robust health and safety measures.

The safety of our employees is dictating our policy. We are following local government and World Health Organisation guidance and can replicate similar approaches across our offices globally as and when it is needed.”

Although the effect of the Covid-19 crisis has been jarring and caused major and sudden change across the industry, managers are confident on the outlook. According to a survey conducted by Preqin in April 2020, three-quarters of managers believe that business operations will return to their pre-Covid-19 state within 12 months. Only 3% believe the effect on operations will last beyond two years.

A report by Deloitte discusses how investment management businesses may change.“In a post-crisis ‘next normal’, new and re-enforced client demands and priorities will emerge, with advisory excellence, the availability of hedging strategies, as well as the confidence in the operational resilience of a wealth manager becoming important factors. To enjoy a competitive advantage in a ‘next normal’, a more digitally enabled front office will be a key requirement. Most prioritise digitalisation around client onboarding, while leaders also digitally support the traditional human elements of the client life cycle: prospecting and client advisory. In the long run, wealth managers will benefit significantly from efficiencies from increased digitalisation – contributing to a much needed increase in profitability,” the report concludes. 

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