Magazine Issues » February 2018

SPONSORED FEATURE: Practitioner makes perfect

Geoff_HodgeFunds Europe talks to Milestone Group’s Geoff Hodge about the global technology firm’s practitioner-led philosophy and its role in the European Fundtech Lab.

Milestone Group was founded in 1998 as a consultancy firm of industry practitioners that noticed increasingly polarised views within the global investment industry on how to plan and implement technology projects. Often these different opinions were within the same firm.

Milestone Group’s founders were determined to bring a more orderly and practitioner-led model to the global investments industry. “It was our view that if you were to come at the challenge of fund accounting fresh and apply an operational approach, something more akin to a manufacturing mindset, that you’d devise something quite different to what many firms had in place. If you could take people away from their respective silos you could make the process much more efficient and widen the possibilities in terms of product development,” says Geoff Hodge, executive chairman, Milestone Group.

It was also Milestone Group’s view that it would only give advice on projects and technology it could implement. This led the group to make the natural transition to becoming a software company, effectively translating its intellectual property into accessible technology, says Hodge. “We see software as a vehicle that allows us to turn our thinking into a service that clients can use.”

At its core, Milestone Group is an investment automation business. Its product pControl has now become a well-established global platform for fund managers, life companies, pension funds and fund platforms, and is currently being used in 15 countries.

The success of pControl has been aided by the growth of the global funds industry over the past decade. While a lot of work has gone into developing systems for trading new securities and other instruments, the biggest growth has been in pooled investment products.

The traditional mutual funds of yesteryear have become more complex and diverse, especially in the growth of the multi-asset market. The consequence of this growth is that many investment managers have found themselves left with systems that were never designed to process these new fund vehicles.

This has led to fragmentation within firms’ operating and processing infrastructure – something Milestone Group has looked to address by allowing multiple purpose-built vehicles to operate on a single platform.

“Our objective is to always strive for improvements, and to support new ways of working in order to change what is possible,” says Hodge. The advent of new technology in recent years – artificial intelligence (AI), machine learning, robotics, distributed ledger technology – has made many people in the industry reconsider what is possible. On top of that, there have also been some behavioural and cultural changes in recent years, not least a growing spirit of collaboration between different industry participants and within the same firm.

“We are seeing much tighter relationships between the product development teams and their operations and technology colleagues,” says Hodge. “There is clear trend towards a corporate commitment to doing things more strategically than a series of siloed projects.”

Collaboration is a big focus for Milestone Group, says Hodge, referencing the group’s focus on assisting clients to exchange data as well as a new forum for clients to actively collaborate and share best practice in areas like exception management in the NAV Production process. Milestone Group has also developed a new product, pControl Oversight, to help firms manage and validate their outsourcing relationships and to produce a back-up NAV without having to go through a costly shadow record-keeping arrangement.

Striking a chord
The growing importance of collaboration is also one of the reasons that Milestone Group decided to participate in Funds Europe’s European FundTech Lab. “The initiative struck a chord with us in that it is another example of a collaborative environment where vendors are coming together to try and solve some of the industry’s biggest and thorniest issues,” says Hodge. “We want to develop a structured way for market participants to have first-hand access to what’s achievable when taking a big-picture approach to the industry.

“Previously clients have spent a lot of time and money working out how to integrate all their different systems, technology and software. Now a number of the key system vendors are much more aligned, and that’s good news for the end users and their clients,” says Hodge.

Clearly the industry has changed in recent years. Consolidation has created a divide between large firms just getting larger and the smaller firms becoming even more specialised. But there is a common need for operational agility and the ability for their systems to enable expansion of their product range or market presence, says Hodge. “Firms are asking if their operational structure can keep up with their product development plans. Many of them have looked at outsourcing and offshoring and are now wondering what is next.”

New technologies like AI, blockchain and robotics has created a number of possibilities for fund managers and their operations, but firms have to be realistic about their application. For example, robotics has certain uses but the technology also carries risk, says Hodge. “Running programmes by external parties on a top-down basis is automation in a weak and inefficient way. If your automation framework sits on top of a number of fragile applications, you need to consider other aspects – what if I change the underlying system? Can it scale?”

The popular perception is that robotics can be instantly industrialised, but it is not true, says Hodge. “The concept is very powerful and not new. But success will not come from sitting this technology loosely on top of your legacy systems; it needs to be embedded within an enterprise system. People have to be aware of the longevity risks involved and not repeat the mistakes of the past that we saw with spreadsheets.”

Distributed ledger technology (DLT) should also be subject to more examination, says Hodge. For example, while Milestone Group is philosophically aligned with the concept of a distributed view of a single transaction, this capability already exists and is already embedded within pControl. And while a DLT like the blockchain could make this process more efficient across external boundaries, firms have to be circumspect about how best to deploy the technology.

“I see DLT as something that will deliver value but we have to be practical and look at issues relating to governance and regulatory requirements like traceability and security, otherwise today’s benefits will turn out to be tomorrow’s challenges,” says Hodge.

One thing that robotics, AI and DLT have done, though, is to shake up the industry and blow away some of the complacency that had set in, says Hodge. Senior executives have sent down directives to look into these new technologies and that’s opening the door to more open thinking across the board. This has been particularly welcome for Milestone Group, Hodge adds. “Firms are now looking for innovators – but those with the security of a long track record.”

©2018 funds europe