Part 3: The future of finance for investment managers
Deglobalization, demographic changes, decarbonization and disruption have created a turbulent environment with significant impacts on investment managers. Lower real returns, competition for private market investments, increased volatility, information velocity, ESG compliance and the struggle for efficiency create a need for most investors to display dynamism and evolve rapidly to stay ahead.
The finance function, with its fiduciary duties, is expected to play an increasingly strategic role in this transformation. By harnessing the power of technology, enabling increased transparency and enhancing insights for decision making, finance can enable enterprise transformation and put in place the strategic guardrails for success.
As it stands, the scope of the finance function at a typical investment management firm can vary from core finance tasks and operational elements, to client reporting and—in some cases—risk management or even data and technology functions. To support the organization’s evolution, finance will also have to play a more pivotal role in developing the firm’s strategic agenda, increasingly leveraging a larger scope of best-in-class capabilities.
To be fit for the future, leading finance functions will act as a business partner providing financial and analytical expertise through an investor’s lens, delivering insights to enable fact-based decision making, all while effectively automating a large portion of repeatable finance function tasks (such as data collection, preparation, validation and reconciliation). In doing so, finance can uncover value across the entire investment management operating model, including streamlined organizational structures, workforce upskilling, process excellence, disruptive technology, automated controls and advanced analytics.
We believe that finance functions of the future will lead the evolution of the organization in three ways:
- Leading with people: Finance team members, teaming, culture and capabilities will be central to this transformation. Finance can lay the groundwork for an organizational shift towards agility by equipping its workforce with the latest industry and technology knowledge, supporting agile teams and collaboration, removing barriers to innovation (such as rigidity in financing) and creating a culture that encourages growth and experimentation.
- Leading with process: Finance processes are crucial to an investment manager’s operations, from supporting performance evaluation, to enabling controls, budgeting and forecasting, reporting and cost management. The finance organization of the future will aim to enhance value by standardizing and automating processes; increase efficiency by establishing data governance and liberating data via organization-wide digital platforms; and improve reliability, flexibility and scalability through the use of cloud and other enabling technologies. It will also ensure oversight and stewardship through automated and predictive controls that enable prevention and early identification.
- Lead with performance: Finance teams at investment management firms have the responsibility to provide trusted financial intelligence and insights to support leadership and management in decision making. The finance function of the future will help to automate the flow of trusted data wherever possible, provide forward-looking insights through the use of data science, machine learning and artificial intelligence, develop a capability that can facilitate visibility into drivers of performance and advise on maximizing tax advantages. It will also develop playbooks to consistently extract value and leverage ESG information for compliance and performance, produce valuations for all assets (including private market investments) on a more frequent basis and build scenario modeling capabilities to help organizations navigate through choppy waters.
In short, the finance function of the future will play the role of a strategic business partner that has an in-depth understanding of industry nuances, anticipates challenges, develops independent insights and provides the right tools and capabilities to support strategic and tactical decision making.
How to get there
The transformation journey to develop a finance function of the future can be achieved in a phased manner, with some benefits accruing quickly, with ongoing value realization over time. However, this approach must be agile to set a standard for transformations in the future.
- Alignment: The process begins with alignment on strategic priorities for finance. It’s important for both finance and organizational leaders to develop consensus on the role finance is expected to play in achieving the strategic ambitions of the firm.
- Design: With clarity and alignment on priorities, the finance function, IT function and consumers of finance products and services must be engaged to identify the desired ‘user journeys’ of the future. This process identifies the desired bespoke future of finance capabilities and identifies any gaps in the current state.
- Case for change: From here, the business case for finance of the future can be developed, complete with the prioritization of initiatives, quick wins and an estimation of costs, timeline and resources. The feasibility of the transformation given the circumstances of the firm can also be determined.
- Rollout: Finally, a pilot can be rolled out using agile sprints. Contracts (both internal and external) can be negotiated, resources can be allocated and costs can be ratified. The rollout of the finance function begins with iterative value delivery by tracking and monitoring the benefits realized.
Building capabilities to enable the future of finance can be rewarding for both organizations and the finance team. Daily tasks can shift from transactional activities to business insight generation and management. Strategic agility, faster decision-making, a plethora of insights and an empowered finance workforce can unlock strategic differentiation at a fund level. The hallmarks of successful transformations are robust upfront planning to reduce delivery risk, a motivated team that exhibits psychological safety, a culture of collaboration, an iterative approach to value delivery and continuous tracking to ensure benefits are achieved.
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Partner and National Private Equity and Pension Fund Consulting Leader, PwC Canada
