Operating Model Strategy

Overview

The client, a large US public pension fund, had an investment infrastructure that consisted of many manual processes, Excel spreadsheets, and third-party systems that were moderately integrated through its controlled processes.

In addition, the client’s data management and compliance functions were siloed among internal teams and third-party providers. The client’s IT infrastructure relied on a few key individuals, primarily set up to support domestic security trading, and it leveraged external managers for trading international securities.

With the goal of moving management of international security trading and processing in-house, the pension plan asked Cutter Associates to assess its infrastructure and recommend a target operating model and roadmap.

Cutter Solution

We assessed the pension plan’s existing infrastructure and workflows and met with key stakeholders from its investment division to discuss current processes and pain points. We then assessed the client’s current state in four distinct areas: systems and services, process and governance, organization and staffing, and data. Upon completing discovery, Cutter identified significant infrastructure gaps in the data and systems and services that support current internal mandates. We found even more significant gaps in all of the four distinct areas if the client were to onboard internal management of international assets.

We reviewed and validated these gaps with the project team and presented a summary to the executive team. Cutter leveraged its knowledge of operating models in pension funds and previous consulting work and built the client’s model around three key themes: system and services, data management, and roles and responsibilities.

Within system and services, we analyzed four potential solutions: incremental improvements, best-of-breed, bundled, and hybrid. Based on the client’s criteria of maintaining separate portfolio management processes, Cutter suggested a hybrid system and services approach. Within data management, we recommended a data strategy be conducted to set the parameters for implementing a data governance model and selecting a data architecture tool to complement the system. Lastly, we recommended internal reorganization and staff augmentation to support the target state operating model.

Cutter created a two-year-plus roadmap to guide the client through organizational changes and hiring new staff, conducting and implementing the data strategy, and selecting and implementing a hybrid order management system/middle office solution.

We brought our recommendation to the senior management team, including its executive director/CIO, who agreed and began discussions with other firms to validate the recommended model. We assisted by providing additional clarification around the recommended operating model and guidance to begin implementing the roadmap initiatives.

With Cutter’s help, we helped our client identify critical gaps in its current investment infrastructure and understand what improvements were required to fulfill its goal of internal global asset management, as well as streamlining current operations. By capitalizing on Cutter’s industry expertise, collateral from previous strategy engagements, and Cutter Benchmarking, we supplied a comprehensive investment infrastructure strategy in a short timeframe, reducing the client’s cost for strategy creation and providing a clear roadmap to achieve internal global asset management.

Want to speak with a Cutter consultant to learn more about this topic or how we can help you? Contact us at [email protected].