Mitigating Risk

Leading Out of COVID-19 Through an Asset Manager Lens

By Corinne Lee | Oct 19, 2020

Hasan Eastspring Interview - 300px

U.S. General George S. Patton once said that we should prepare for the unknown by studying how others in the past have coped with the unforeseeable and the unpredictable. His words remain as relevant today as they did back then.

Now is the time for firms to reflect on the unprecedented disruption to business and work life that has occurred over the past months – to leverage insights and practical knowledge learned as we prepare for an uncertain future.

Looking through the lens of an asset manager, DTCC’s Hasan Rauf, Executive Director, Head of Business Development - APAC, recently held a one-on-one discussion with Raymond Tang, Chief Executive Officer, Eastspring Investment Berhad, to discuss the shift from 20/20 hindsight into renewal and business resiliency in the new normal.

Rauf: As COVID-19 has brought a new meaning and depth to business resiliency, leveraging the right infrastructure is key to managing business operations and advancing business growth. The reliance on technology before, during and post-COVID19 to support a scalable infrastructure will continue to increase as we prepare for recovery. What are your observations on this point?

Tang: COVID-19 is a huge stress-test on the business continuity planning (BCP) framework for the economy as well as the financial industry beyond their original designs and ability to respond to unplanned events in real-time. More pertinent for the financial sector, the pandemic has also highlighted the need for infrastructure to be built for the long term instead of a one- to two-week temporary quick fix solution as is often prescribed in best practice guide for BCP.

In the pre-COVID-19 days, we saw firms equipped with only the basic infrastructure while their core processes are dependent on emails and spreadsheets. Aside from the inability to cope with increasing operational demands during the COVID lockdowns, inefficient communications techniques not only introduce operational risk caused by human errors, basic security protocols may be compromised due to operational fatigue.

The demand for communication solutions to manage both customer facing activities and internal meetings has since skyrocketed in the past few months as we witnessed almost instantaneous deployment of video conferencing and other collaboration tools to replace face-to-face meetings. Given the availability of free as well as easy-to-install video conferencing platforms, this was an easy win. The same cannot be said of back-end operations where there are many processes and sequential activities involved that require attention and focus on details. As the back-office functions of small-to-mid sized firms are largely manual today, these firms had to make major adjustments to fit in the new normal. The lesson learnt here: leverage automation to cope and plan for the unexpected.

Large firms, on the other hand, did not fall victim to the operational risks often associated with manual processes – having implemented streamlined, automated processes that enable their workforce to operate as normal, on premise or remotely. These firms rely on either the services of external vendors to support the smooth running of either non-core functions or the entire business operations or leverage the services of their internal team for back-end support.

Rauf: In times of cost savings, how does outsourcing help to bring scale and the best operational infrastructure to enable firms to focus on their core competency?

Tang: The question to ask here is: In the business environment of the new norm, should a firm build out a new operational infrastructure to support post-COVID19 changes or leverage the services of an outsourcer? When considering how business will be done in the future, it is valid to consider the cost factor. Investment in technology and infrastructure platform is not a one-time capital cost. We need to think about ongoing system maintenance expense. With upgrades, system redundancy, software and consultancy costs, the costs will continually pile up. There is also the need to address and manage the system obsolescence challenge. Tomorrow, there will always be a better, faster – and cheaper – platform out there.

With these considerations as a backdrop, I believe capital market firms may choose to outsource when beta testing a new operating model in a modular manner, enabling the addition and deletion of process modules. This will the operating model to undergo several rounds of testing and iteration – all done quickly and affordably while allowing firms to focus on their core business.

That said, the questions we need to ask as a business: “What business are we doing?”, “are we in the fund management business or IT business?”. The answers will guide our ultimate decision, i.e. to outsource or insource.

Rauf: With so much discussions on the second wave of COVID-19 likely to happen, how should capital market firms in Southeast Asia future-proof their business?

Tang: To strengthen our business resilience and protect critical services against any unplanned events, we first have to determine what are the non-core business functions that can be handled efficiently and effectively through outsourcing. This would require a shift in mindset and thinking from “if it isn’t broken, why fix it?” to “how can we leverage external specialists to relieve us of our daily, mundane operational tasks at the same or even cheaper costs?”

When outsourcing, firms should be open to adopting global standards and best practices expected of those functions to be outsourced. This would mean the elimination of customization or flexibility in those determined functions. From my experience and observations, more effort is placed on the form over function of the outsourced activity. For example, the benefits of outsourcing will be lost if a firm is fixated in ensuring that an internal report should be in the exact old format, ignoring new inputs which could further enrich the report to provide better operational oversight and visibility needed for decision making. To apply this thinking in our everyday life, imagine requiring a Telsa car to incorporate the same dashboard layout and symbols guide as a Toyota Camry.

The deliberation is on how to leverage the operational insights from these outsourcing activities to better run our business. I firmly believe that standardization is key to scaling and growing your business. As change is never easy even during normal circumstances, COVID-19 has essentially forced firms to contemplate changes, such as outsourcing, to increase operational resilience while navigating the ongoing threat of business disruption.

Rauf: Finally, can you share the lessons that you have learnt from COVID-19?

Tang: The takeaway from COVID-19 is that risk takes on forms that we can never envisage nor refer from any BCP manual or past crisis playbook. Under these trying circumstances, the philosophy of risk management then becomes our guide and we should follow the spirit and not the letter of the law.

Essentially, the essence of risk management is about identification, and management of risk. It is not about eliminating all risks.

 

 

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