November 2017

AUTOMATION: Automate my prospectus

Tim_SteeleMany fund documents can be produced and updated using automation. Tim Steele asks if the prospectus can, too.

Thick, weighty, dull but necessary – that’s the fund prospectus. It won’t change much once published; it doesn’t need updating with performance figures, for example. So, is there any real need to automate its production?

Olivia Vinden, a consultant at Alpha FMC, acknowledges the broad interest in automation and straight-through processing across the asset management industry, particularly in terms of machine learning and robotics. But she says this trend has yet to gain real traction when it comes to producing fund prospectuses.

“There is demand around the regular reporting elements, such as fact sheets and client reports, but when it comes to prospectuses, volumes are low, even for larger managers,” says Vinden.

As launching a fund, or taking on a segregated mandate, is not an activity that happens multiple times a day, for many managers the case for prospectus automation has not been compelling.

What would drive the automation of the prospectus would be if asset managers saw it as a risk-reduction exercise, says Vinden, as opposed to just one of cost reduction.

Yet a small but growing number of technology firms are now supporting asset managers around the automated production of prospectuses. The activity follows on from the automation of other key sales, marketing and regulatory documentation such as fact sheets, shareholder reports, key investor information documents, private placement memorandums and statements of additional information.

One of the firms is Seqvoia in Luxembourg. According to its CEO, Nicolas Buck, the key to automated prospectus creation is to identify where areas of data commonality exist across all of an asset manager’s content and document processes.

Data in any fund manager’s office presents a fragmented picture. “There is no real supply chain of information,” says Buck. “This is an industry that has been largely built on outsourcing, so there are an enormous number of external service providers and partners in play, plus the regulators.

“The challenge is to provide a solution that can be scaled across all the organisations that make up that documentation chain.”

London-based Spectra Global Solutions identifies four key stages to automating fund documentation. Data and content harmonisation are two. Workflow collaboration and multi-channel publishing are the others. 

A broad spectrum of documentation can be produced by bringing together all fund data and content – both static (such as the fund name, any disclaimers and the investment policy) and variable data (which includes portfolio performance and audit letters) – within a single database and a single platform, says Steve Castle, Spectra’s CEO.

“There is real value in sharing common information across multiple funds and multiple documents, updating that information once and having control of that process,” he says.

Castle adds that a priority for managers is to provide clients with more information and personalising that information.

“For instance, not just standard performance of a fund over ten years, but performance since an individual client invested and a breakdown of their investment. So, much more detail essentially – and a single database allows you to provide all that information quickly and accurately.”

Cost and speed to market are still the key considerations around any fund launch. The production of prospectuses is a central part of that process, but once a fund is up and running, the investment manager will need to maintain an accurate and timely flow of information to existing clients, potential investors and a broad spectrum of partners, third parties, and regulators.

From the all-important risk perspective that Alpha FMC’s Vinden highlighted, consistency and coherence are important when it comes to the dissemination of what are often small yet critical pieces of information – for example, an adjustment to a fund’s cut-off time.

Tom Pfister, vice-president of global product strategy at Confluence, says: “Today, the requirements of the regulators are such that prospectuses, for example, must be much more representative of the activities [fund managers] are promoting. Plus, the update cycles are accelerating, and there is a need – particularly in Europe – to distribute prospectuses and other documentation across borders and in multiple languages.”

Pfister says Confluence focuses on automating the drawing together of data from core accounting and post-trade datasets and feeds.

Frictionless and timely
As the industry faces up to various ongoing challenges – the shift from active to passive, margin erosion, increased competition and the flow of new regulations – the case for streamlining a greater number of operational processes becomes ever-more compelling, particularly in the case of multi-asset class fund structures targeting investors in multiple countries.

Allowing managers to move on from the traditional, highly manual model of document creation – which is heavily reliant on Word, Excel and email – such solutions promise to reduce costs, minimise risk, ensure legal compliance and help managers to fast-track new fund launches.

Automated solutions focus on harnessing data so that it may be updated or otherwise manipulated in a consistent, dynamic and auditable fashion, allowing for its replication across a range of product documentation. That documentation will often need to be published in multiple languages and be distributed in one or more formats (be that typeset PDF, CFD, HTML, XML, XBRL, EDGAR, data file or web-ready).

In addition, these solutions provide mechanisms to share that data and documentation in a frictionless and timely manner across a manager’s internal functions (marketing, sales, risk, compliance) and its external service providers (auditors, lawyers, custodians) and distribution partners.

The ubiquity of Word in the creation of product documentation is well recognised, as are its shortcomings: its fundamentally unstructured nature means reconstructing and categorising data extracted from a Word document remains a challenge.

“Word does not lend itself well to the replicability and scalability that is so important to automation,” says Castle.

However, as Buck notes: “The industry is not going to move away from Word any time soon, so you need to find ways to incorporate it into your solution. Ultimately, it is about finding ways to contextualise the content.”

Accurate and transparent communication is vital for managers, and re-engineering existing workflows is a key area where automation can improve upon the status quo, says Confluence’s Pfister.

In terms of next steps, he points to “intelligent” workflows that would assist a compliance function to, for instance, better manage the handoffs that occur between different departments as content is assembled.

“That will ensure that all documentation is updated in synch, and also frees up the compliance team to focus their attention more closely on outlier data,” he says.

Further in the future lies the prospect of deploying AI to identify outliers before they even reach the compliance stage, Pfister says.

Fast and formulaic

All this development will, of course, have to not meet regulatory resistance.

Peter Bambrough, a consultant at Citisoft, notes that although national legislation may control where data may physically be stored, regulations will rarely stipulate whether or not a function can or should be outsourced.

Yet regulators also benefit from increased automation in the funds industry.

Automation ensures information and documents are delivered to regulators in a very formulaic and consistent fashion, more quickly and with fewer errors, says Castle.

“Regulators can have confidence that they are getting a true picture of a fund across a range of documents.

“From a compliance perspective, everything is signed off by the client. Documents still pass through internal approval processes, and client data rules are not breached because all reporting remains at the fund level.”

Compliance is also not just about complying with regulations, but also with buyers’ expectations, and here again the benefits of automation come to the fore, adds Seqvoia’s Buck.

“A distributor or institutional investor will not just look at your fund’s past performance and Sharpe ratio. They will also assess what level of information you can provide to educate their sales force, how painless it is to update your product information, the trustworthiness of that information, and how flexible you are in terms of providing different formats.”

Ultimately, there may be less incentive to automate the production of prospectuses compared to, say, a fund’s quarterly reports or its regulatory filings. But no doubt many people involved in the production of these thick, weighty, dull but necessary documents will be relieved the technology is there to do it.

©2017 funds europe