iSixSigma

Asset Management

It’s been awhile since my last post. In October 2010 I secured a new role in our institutional asset management business in the City of London. Ever since I’ve been head-down learning the business and working furiously to pass my investment management exams so I can appear credible and add value.

My role is front-office to enhance our client experience through delivering business processes that consistently meet their expectations. I find this is much better than the agendas of old – cut costs – drive efficiency – reduce head-count. Having been in-process for a few months now I believe I have gained enough insight and questions to benefit this forum and myself.

Asset management is a simple enough concept – provide financial products that balance a client’s investment objectives – capital growth & income – within their desired risk profile. To chase big gains means accepting high risk and to protect capital means little chance for gain. However sometimes this breaks down spectacularly when true risk is misunderstood, for example:

• Long Term Capital Management (LTCM) had two Economics Nobel prize winners on the team (Merton & Scholes) with real expertise in risk-management and they borrowed huge amounts (leverage) against their clients’ money to boost returns. Yet went bust when their seemingly low-risk trading strategy went bad simultaneously in every market.

• In 2008 AAA-rated collateralised debt obligation bonds (CDO) backed by home mortgages started to default. Although appearing as low-risk / high-reward products in fact the risk-level was much higher as they were built on low quality sub-prime loans assets. Witness the mess!

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Being new to the industry I must say I am surprised at its sheer size and the remarkably complex set-up of businesses, products, regulations and processes all needing to work together perfectly all the time. Some areas work like clockwork with high volume straight-through transactions. Equally there are some processes that bring together a number of highly specialist teams to collaborate in delivering high-value outputs. So being able to see and work with the whole process spectrum is brilliant.

As a business you are primarily judged on investment performance. In much the same way as selling price can be the most significant factor when making a purchase. Beyond that (and my area) is to create excellence in the client experience. From the major projects e.g. client on boarding to the regular activities e.g. monthly valuation reports to the daily e.g. trade settlement. You need to be right at the top of your game with constant innovation.

What I have seen is information flow seems paramount giving clients clear, timely and accurate information about their financial holdings – performance, risks, trading activity etc…

Anyway, more from me on-the-way.

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