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The advantages to separating duties in Investment Cash management

The advantages to separating duties in Investment Cash management

There is currently a group among General Fund Managers (AGF) that has focused on asset management without significantly managing investors. Placement agents, who have important customer bases, are currently the ones who manage investors, but there is no record of the companies that do business in one segment or the other of the chain, nor of who is at both ends.

This is because companies are normally created with a broad line of business, so the Financial Market Commission (CMF) has no record segmenting by duties.

For example, in Europe, there are “fund supermarkets” that specialize in selling funds in different parts of the world and offer a variety of investment alternatives of the
different fund managers. This is what we call a Separation of Duties, which allows companies to focus on the part of the business where they have competitive advantages based on the market where they operate.

When we separate the Cash management Business, we discover that there are three areas: i) the asset manager (creator of the funds); ii) the placement agent (manager of investors/participants); and iii) the business process outsourcing (BPO) company. Each of these organizations has competitive advantages based on their specialty.

This trend has been present since the Consolidated Fund Act (LUF) entered into force in Chile, and there is already one company engaged in placing the funds of different managers. Now there are also companies that engage solely in managing investment portfolios.

However, as a financial market, we must still draft legislation to strengthen the separation of duties, which translates into an improvement of controls to avoid problems like those seen a while back in the valuation of portfolios between two companies in the sector; and to generate operating efficiencies that will ultimately reduce
costs. New players, both domestic and foreign, will also be able to enter the sector, which raises competition and improves the efficiency of the market.

Technology tools play a key role in this new scenario as they support the business and are strong in one or more of

the above-mentioned duties. They also have an open architecture so that they can integrate efficiently and securely to other applications. A great flexibility is needed
to ensure their evolution. In the end, these activities must be supported by IT solution and service providers that are up to this challenge.

If the strengths of each company are properly measured, especially their knowledge of the business, accompanied by an analysis and distribution of the expected costs and benefits, companies will be able to recognize where they should be in the process chain. From there, they can make the right choice about the technology tools that will be used to support their business.
SONDA has more than 20 years of experience in the financial market, specifically in developing cash management solutions. We have implemented many solutions successfully in different companies on the cash management and financial market.

Our RealAIS AGF solution brings together our cumulative experience and knowledge of this business. It has what is needed to evolve with the business and our customers and to add value to the work of fund managers in Chile.

Published in: “E Banking News”