 Marianne Brown
President and Chief Executive Officer
October 12, 2009
Recently, I participated in a Glass Hammer event for senior women on the buy-side. My fellow panelists included Cynthia Steer, Chief Strategist of Rogerscasey, Liz Philipp, head of the New York office for PIMCO and Annie Morris, Managing Director of Linedata’s North American Business. The panel was moderated by Holly Miller of StoneHouse Consulting.
Together we looked at how buy-side firms might do business in this new, post-crisis environment. A term that came up more than once was the “new normal;” a sense that the crisis that began in 2008 represents more than just a temporary correction. There was a broad consensus among the panelists that there has been a change in our collective DNA and that the way firms think about issues like risk, transparency, liquidity and regulation will need to be fundamentally rethought as we move ahead. Even as funds’ appetite for investment risk grows, they will need to simultaneously work harder to minimize operational and counterparty risk.
A couple of years ago, there was a notion across the industry that it was the concern of the operations team to worry about operations. But in this post-crisis world, operations functions must be closely aligned with risk management and help to bridge the gap between the front and the middle office. A key part of achieving operational risk reduction will be to improve efficiency by automating reconciliation and collateral management processes for the entire duration of these long-term contracts. This, in turn, will help restore investor confidence because there won’t be so many unknown factors that are inherent in today’s derivatives contracts.
Though little money can truly be made in the middle and back offices, significant amounts of money can be saved there; both in real cost reduction and potential losses averted. In a difficult market like this one, operations really matters.
In my opinion, all sectors of the market are trying to get a grasp on what this new landscape means for their firms. Those who previously hadn’t prioritized operational risk are now reconsidering and reprioritizing and those firms that had already implemented appropriate risk procedures are now bracing for the next raft of regulatory hurdles. Nobody is immune to the new challenges facing us all.
However, these common challenges should also unite the market. The panel agreed that it is the industry participants themselves who have the required expertise to drive the regulation that works best for the industry. While the government and other industry bodies can play a crucial role in framing regulatory initiatives, these must be led by the operational experts within the firms who have the best understanding of their impact. There is an opportunity for us all to lead the change, and begin the process of collaboration between the market and regulators.
All in all, today there is absolutely more operational due diligence being conducted across the industry, which is extremely beneficial for all market participants. Over the past couple of years, the role of operations professionals has become more enhanced. The ability of the operations function to both see and mitigate risk early on has dramatically increased and the industry is responding by increasing the investment in risk management capabilities. Regardless of what lays ahead, this aspect of the “new normal” is one that should continue to be embraced.
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