In my earlier piece on Fintech, among other things I shared the following thoughts. That as is true in other countries, Ghana’s FinTech ecosystem is a complex and dynamic environment with interdependencies between various actors. Regulators such as the Bank of Ghana provide policy and regulatory direction for the financial sector. Traditional financial institutions such as commercial banks offer financial services through digital and physical branches. They are also the custodians of electronic funds transacted on FinTech innovations.
Telecommunications companies (telcos) also play a critical role. They use their mobile network platforms to offer digital financial services, popularly referred to as mobile money. For their part, FinTech firms develop digital financial services. In Ghana, there are over 30 unique FinTech services. They include Qwikloan, Zeepay, G-money, Slydepay, and eTranzact. Then there are the agents – small enterprises, acting as “shadow bank branches” or “cash-in, cash-out” points – providing support for digital financial services. There is more.
Managing Funds
Managing funds and advising on investing are a meticulous affair. Keeping tabs on all the transactions and their impact is not a menial task. Being close to the right outturn pays, especially because the funds involved are typically huge and just a little deviation could mean millions off the mark. Judging by the sheer number of varying clientele base of most asset management companies, technology is usually the only way to reach out to clients, offer clients convenience and give returns that are commensurate with a certain level of risk. Research and analytical tools enable asset managers critically select securities and define a basis for holding on to those securities or disposing of them and replacing them with others.
A number of firms employ proprietary software to drive their operations for success and give them an edge over the competition. Their software is painstakingly developed and owned by them. Some other firms, however, purchase and use software purchased ‘off the counter’. For this reason, designing and building such software have become thriving enterprises.
Asset managers employ sophisticated software packages to help them get the best results for their clients on their investments. Typically, these software keeps a record of all fund transactions for each client account. They record the amount of funds in any investment security or asset and track the performance of the investment against benchmarks.
The software may help with compliance issues, as well as reporting to shareholders periodically and appropriately. Routine tasks are automated. Analysis of large data is carried out. Client management is also automated to be interactive, responsive and timely enough to be relevant. Periodic reporting to clients can also be generated and dispatched to clients via email or mobile communication.
BlackRock’s Aladdin
A great example of how software and technology have powered an investment management firm to success and transformed the fortunes of the firm is BlackRock’s Aladdin. BlackRock manages more than nine trillion dollars’ worth of investments. It was started in 1988, initially as a risk management and fixed income institutional asset manager and has now become the world’s largest asset manager.
In 2000, BlackRock launched BlackRock Solutions, the analytics and risk management division of BlackRock, Inc. The division grew from a number of different functionally targeted and distinct systems:
- the Aladdin System– an enterprise investment system,
- Green Package- a risk reporting service,
- PAG- a portfolio analytics solution and
- AnSer- an interactive analytics solution.
BlackRock Solutions (BRS) serves two roles within the asset management firm, BlackRock. BlackRock Solutions is the in-house investment analytics and “process engineering” department for BlackRock which works with the firm’s portfolio management teams, risk and quantitative analysis, business operations and all the other parts of the firm’s investment process.
BlackRock differentiates itself from other asset managers by claiming its risk management is not separate. Risk management is the foundation and cornerstone of the firm’s entire platform. Aladdin, from ‘Asset, Liability and Debt and Derivative Investment Network’, keeps track of 30,000 investment portfolios, including BlackRock’s own, along with those of competitors, banks, pension funds, and insurers. According to The Economist, as at December 2013, the platform monitors almost 7 percent of the world’s $225 trillion of financial assets.
Aladdin uses several technologies: Linux, Java, Git, ELK, REST and some others. From the earliest days of the firm, it was very focused on building a risk capability to understand each and every asset, each and every benchmark, and each and every portfolio. During America’s ‘Great Bond Massacre’ year, the federal Reserve Bank raised interest rates more than the markets expected. The volatile environment this created, with fixed income portfolios blowing up as interest rates rose and bond prices shrank, the market suffered heavy losses. However, BlackRock’s funds held up well with minimal losses. Aladdin enabled the company’s investment teams to comprehensively understand what securities they had bought.
Avoiding Mistakes
The fact that Aladdin enabled BlackRock to avoid making mistakes was important for the reputation of the firm. Soon, the market noticed how well and often BlackRock got it right in predicting market movements, the status and credibility of the firm grew, as did its assets under management (AUM). Many people sought BlackRock’s advice on how well their portfolios sat.
By the mid-1990, BlackRock already “had the capability to capture trades electronically, to have dashboards with different colours to manage the work flow digitally, to have all positions in real time. At the time, those who could work on spreadsheets were considered highly technical. Therefore, Aladdin’s capabilities were shockingly rare at that time. In the midst of 1995 crisis, BlackRock, powered by Aladdin, quickly understood that the technology that they developed and that they thought others might have, was actually “quite unique in the industry at that time.
BlackRock has always attributed much of their sterling performance to the technology it employs. The Chief Executive Office, Larry Fink, told investors on BlackRock’s most recent earnings call that the vast majority of the firm’s technology revenues come from its institutional Aladdin capabilities, which sets the standard in investment management technology.
“Our long-term strategy is to provide technology for much of the asset management value chain as possible and make Aladdin the language of portfolios,” Fink said. “Demand remains strong for Aladdin and our technology capabilities, and we expect growth will be driven by expanding its capabilities to existing clients, attracting new clients, to inorganic growth, including eFront (a new acquisition from France which offers technology for managing alternative investments) and the growth of our client’s businesses as they scale themselves” stated Fink.
Green Package
Green Package is a comprehensive suite of portfolio risk management and compliance reports. It allows institutional investors to analyse and manage risk. The Green Package aggregates all risk exposures by asset type, sector and portfolio. Benchmarks and liabilities are also modeled at the individual security level, eliminating model risk and allowing for a detailed comparison of portfolios versus benchmarks.
The Portfolio Analytics Group delivers financial analytical capabilities on securities and portfolios to BlackRock’s investment and risk management teams and external clients. The group works with financial modelers and software developers the company’s risk and analytical capabilities.
The role of technology in asset management is critical, therefore. While it offers asset managers the chance to gauge important market indices and gain a better handle of risks and opportunities in the market, clients too have access to convenience, interactive engagement and real-time feedback on queries. These enrich the investment experience for both the client and the asset manager.
ABOUT THE AUTHOR
Through his writings Kwadwo has discovered his love and knack to simplify complex theories spicing them with everyday life experiences for the benefit of all. The Head of OctaneDC Research, Kwadwo Acheampong, has over a decade experience in fund management and administration, portfolio management, management consulting, operations management and process improvement. Feel free to send him your feedback on his article. Email: [email protected]
Cell: +233244563530
