Ignites recently published an article “Shops Zero In on Fund Pricing Risk Management” about a Deloitte survey that examined what Fund shops are spending time on — keeping their folks up at night.  A breakout star this year is business continuity planning (BCP) of their key third party service providers. This topic is near and dear to Delta Data, given we thrive on being an integral part of our client’s execution of their business model. Our view on this subject is to embrace transparency for our clients to understand how we approach the critical need of service delivery. More importantly, we have some thoughts on how to best execute the oversight of the supply chain of services our clients have come to rely on to execute their business.

Oversight has emerged as a key topic in the last few years, and I would bet there is an “oversight process on the oversight process” already in existence somewhere. Given basis points are hard to come by and taking on duplicative and inefficient work is urged to be avoided; a smart, tech-enabled strategy can be the source of comfort in today’s world of ever-increasing oversight requirements.

Many of our clients leverage our capabilities to model the supply chain of services to meet 408b3, 404a and Distribution in Guise requirements. These models include the primary service providers that deliver third party distribution to the fund, the fees they collect, the contacts they work with, and the agreements that support the relationship. The functionality is built to incorporate documents and data shared in the pursuit of oversight in this critical fund area of focus. This concept can be re-used and applied to the service providers that deliver the daily fund accounting, pricing, trading, and compliance. The centralization and modeling that has already been structured in support of earlier oversight requirements are directly leverage-able to gather and manage information on service providers. A Control Objective could be “Business Continuity Testing and Results” inside of an overall Area of Focus called “Business Continuity.” The requirements call for configuration not new capability.

The Ignites article also includes comments on the fund’s ability to provide an over-arching BCP strategy whereby the entire supply chain is replaceable for brief-to-extended outages. This quickly went into the deep end of shadow record keeping, replication of controls etc. It is my opinion, this is what the Funds pay the service provider to do, and it is the service provider’s responsibility to deliver. Plan B should not be the use of a fully duplicated Fund back office; it should be something lighter that is more in keeping with the millions of dollars already paid to others, like Delta Data, to keep the lights on at all times. I particularly liked that 17 percent of responses stated they would go out to distributors with the Benchmark as a replacement to NAV.

Here is an interesting thought: If you use an oversight tool to share information back and forth with your known distribution channel as part of your oversight program, why not leverage that same platform as your BCP conduit for communications in the event of an extended outage.

Written by: Whitfield Athey, CEO

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