With fund administration undergoing technological transformation, keep an eye out for AI, machine learning and blockchain, writes blockchain-based software developer aXpire’s Gary Markham.
There’s no way around it; the fund administration space is ready for a major shake-up.
Whether it’s banks, hedge funds or venture capital organisations, fund and asset managers have traditionally been burdened with manual, antiquated, labour and time intensive processes that result in massive inefficiencies.
Thankfully for fund administrators, new technologies are emerging that promise to make things quicker, easier and more cost-efficient for financial institutions of all shapes and sizes.
According to a recent study by financial core systems giant FIS, fund administration is at a key transitional point in time with regard to technology.
External pressures from regulators are forcing funds to more rapidly digitise their products and processes, with nine out of 10 funds expecting to make significant investments in new technology systems before the year 2020.
This includes tools and systems in the areas of big data analytics, cloud computing, artificial intelligence (AI), the blockchain and others.
Many of these technologies will help fund managers overcome many issues that have long plagued the industry, such as paper, PDF and spreadsheet (PPS) processes, inter-departmental collaboration and vendor cost allocation.
Here are three of the top tech innovations that funds should monitor, and consider implementing, for 2018 and beyond.
1. Artificial intelligence
One of the most discussed technologies in fund administration that has the promise to truly revolutionise the industry is AI.
For example, AI could potentially be implemented to aid fund administrators when it comes to approving (or denying) expenses.
Over time, the AI will glean information about previous (and ongoing) expense denials and approvals from SQL and other databases. The AI could then score, rate and recommend whether or not an invoice should be approved immediately, reviewed or outright denied.
While the final decision would lie with a human administrator, AI has the potential to greatly streamline the process and cut costs.
For new expenses, AI can also offer internal finance departments clear guidance as to whether new expenses fit certain criteria of previously approved or denied expenses, saving time and reducing human error.
Trade reconciliation is another area of fund management that AI is already making things more efficient for fund managers.
AI bots could bypass the normally laborious process of trade reconciliation, complete the process themselves and only alert a human if intervention by a person is absolutely necessary.
Whether it’s invoicing, compliance or accounting, funds that implement AI sooner than later are set to see a significant impact on their bottom line as the system learns and streamlines processes over time.
2. Machine learning
As we just alluded to, the other half of the AI equation that looks to be a game changer for fund managers and administrators is machine learning.
Systematic data gathering efforts will enable machine learning software to provide increasingly streamlined and sophisticated solutions for fund managers.
Eventually, as systems learn, adapt and take predictive action, the bulk of human inputs in areas like legal, compliance, accounting and procurement will be removed altogether.
Just last year, the Royal Bank of Scotland (RBS) announced an internal Innovation Lab initiative designed to further machine learning as one of the key technologies for the future of fund administration and management.
Aside from removing PPS processes and minimising interdepartmental touch points in various aspects of fund management, machine learning has the potential to better track and manage workloads, timelines and expense aging.
As part of the $10.6 billion RegTech market, machine learning will be one of those technologies that fund managers wish they implemented yesterday, and not tomorrow.
The backend cryptocurrency infrastructure, referred to as the blockchain, is already making sizable waves in how funds of all types are managed and administered.
From accounts payable to procurement, blockchain is already helping to provide greater efficiency, transparency and communication in most areas of fund administration.
In the AP process, for example, funds could potentially leverage blockchain features like smart contracts to automatically verify invoices and connect with vendors instantaneously. It’s possible that blockchain may even make invoices obsolete altogether.
Implementing blockchain software for spend management differs from the traditional approach because it’s AI-driven, cloud-based and decentralised.
The distributed nature of blockchain also adds an extra layer of security for funds, since information is decentralised throughout multiple servers, instead of one that could potentially be hacked.
Blockchain also creates an immutable trail of transactions that provide value throughout the auditing, compliance and reporting processes. This is of great potential utility to any fund that is required to understand company spend and profitability data.
Regulated hedge funds, for example, are required by law to report fund expenses to the SEC. Funds that use blockchain-based spend management software will be able to view, in real-time, spend data across the company.
This provides fund managers with the live data necessary for intelligent profit maximisation. Blockchain decentralisation will provide funds with all of these advantages, and also facilitate a “clean” method of fundraising to kick-start early growth.
Some have posited that while new technologies have undeniable efficiency value for funds, security still remains an issue.
However, with advancements in cloud-based computing and distributed nature of blockchain, implementation of technologies such as AI and machine learning might actually be more secure than traditional servers.
So, while many fund administrators go about 'business as usual' with PPS processes and overall inefficiency over the next few years, keep an eye on machine learning, AI and blockchain.
The fund administration tech revolution is coming; it’s just a matter of which side you choose to be on.
Gary Markham is the founder and chief executive of aXpire.
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