This is the first article in a 3-part series where Alpha will be taking a deep dive into the function of a Middle Office for Asset Owners in the Middle East. We start by looking at the key benefits of implementing a Middle Office team and discussing Alpha’s experience in advising our clients on the topic.
The ‘Middle Office’ is a well known function seen in most, if not all, of the largest asset managers. The lack of regulatory requirements and narrow selection of asset types, has up until now, seen less demand from Asset Owners (SWFs, pension funds, insurance funds) in the Middle East to build out this function, instead opting to bolster their current investment operations team. With Asset Owners in the region expanding their alternatives capability, and heightened demand from Front Office teams for real time visibility into data, many are looking to formalize a Middle Office and invest in technology that can support the investment teams in their alpha generating activities.
Implementing a Middle Office can be a complicated process if not done effectively, however the increasing evidence of the benefits for doing so can’t be ignored. In this article we outline the key benefits of a Middle Office and provide insight into Alpha’s experience in supporting our clients to establish a Middle Office within their organizations.
What is a 'Middle Office'?
We have seen various Middle Office setups at our clients, but typically this team is responsible for:
What are the benefits of a Middle Office?
1. IBOR Delivery: Enabling Access to Real Time Data
A specialized Middle Office team focused on IBOR delivery ensures that Front Office investment teams have access to accurate, real-time investment data. By maintaining a comprehensive and up-to-date IBOR, which consolidates data from various sources and systems, the Middle Office facilitates seamless access to critical information such as positions, exposures, and performance metrics. This real-time transparency enables Front Office teams to make informed investment decisions promptly, capitalize on market opportunities, and mitigate risks effectively.
2. Centre of Excellence: Driving Operational Efficiency
Asset Owners typically deal with multi-faceted investment portfolios spanning various asset classes, geographies, and investment strategies. A Middle Office acts as an operational hub, consolidating data, standardizing processes, and enhancing efficiency across the investment lifecycle. By centralizing tasks into this team and ensuring its members are upskilled across asset classes (both private and public), it creates a single point of contact for Front Office support, enabling Asset Owners to operate seamlessly and respond swiftly to market dynamics.
3. Optimizing Costs
Implementing a Middle Office can yield significant cost efficiencies for Asset Owners in the Middle East, by automating manual processes, reducing operational risks, and optimizing resource allocation, the Middle Office enhances cost-effectiveness. Ensuring that the team is enabled by the correct technology is key to unlocking this cost efficiency.
4. Scalability and Growth
As Asset Owners in the Middle East expand their investment portfolios, grow AUM and diversify into new asset classes or markets, a Middle Office can provide scalability to accommodate growth effectively. This scalability ensures that the infrastructure, processes, and systems can support increased volumes and complexity without compromising performance or reliability.
Alpha Case Study: Middle East Asset Owner
Alpha recently advised a large Asset Owner in the Middle East on their optimal Middle Office strategy, identifying their key pain points, comparing against peers, defining tasks and processes and ultimately recommending a new Middle Office team to better support the investment teams.
Client challenges
- Roles and responsibilities were not clearly defined across the business with key boundaries and handoffs not obvious between teams.
- Front Office teams were performing many operational activities, reducing their time spent on alpha generating tasks.
- The firm was transitioning their technology stack to be more enterprise focused rather than best of breed, creating new tasks and responsibilities which were not owned by a specific team.
Alpha approach
- Alpha conducted a comprehensive current state analysis interviewing teams across the business, identifying key pain points and what support they needed.
- Alpha combined this analysis with an in-depth peer review where we utilized our knowledge and experience from previous clients to create an industry best practice model that we adjusted to our clients current operating model.
- Our analysis led to a recommendation of a small Middle Office team, that are cross trained across publics and privates and would act as the single point of contact for the Front Office.
- The recommendation covered organization, people, process and technology considerations and provided our client with a comprehensive implementation plan.
Benefits realized
- Reduced operational burden on Front Office teams.
- Clearly defined roles and responsibilities across the business increasing efficiencies.
- Ability to now effectively leverage their technology to focus on IBOR delivery allowing for real time visibility into positions and cash.
- Established clear governance and reporting lines across the business.
Summary
A Middle Office can offer a lot of benefits, however implementing one can be a complicated process and one that is important to get right the first time. Alpha’s Operations practice has extensive experience in this and specifically with clients in the Middle East. Please contact us here if you would like to discuss further.
About the Authors
Jamilla Ekedi-Tanenang
Senior Manager
Jamilla is a Senior Manager at Alpha with experience across several Asset Management projects, with a focus on Operations & Outsourcing. She specialises in operating model design, provider selection and implementation cross Middle and Back Office, with a particular focus on Transfer Agency.
Ben Cordingley
Consultant
Ben is a Consultant at Alpha and has a strong background in project management, enterprise platform transformations, TOM reviews and RFPs working across both Alpha’s Investments and Operations practices. He has worked with a variety of clients in the investment management industry including large US asset managers and various Middle East asset owners.