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Improve Portfolio Management – Invest in Your Back Office

May 18, 2016, 07:00 AM

As a growing investment firm, we place a big emphasis on systems and process with the goal of making money and saving time. We attribute our ongoing success to a thoughtful coordination between the investment side and the operational side, enabling us to achieve optimal performance for our clients, our investors, and us.

The back office used to be viewed as sheer expense … IT, accounting, HR, risk management and compliance. But now, by applying greater efficiencies into these areas of operation, companies are able to more simply and quickly comply with regulations and laws, minimize errors, and improve cost-effectiveness.

For us, by investing in third-party tools for underwriting excellence, portfolio management and investor reporting, we’ve been able to quickly scale up as we grow. If our brand defines us a world-class, growing investment firm, our investors expect that in any and all forms of communication, from request handling to our annual meeting.

Creating an Integrated Operation

Maintaining or enforcing internal processes and procedures, complying with regulations and laws, and providing accurate information to investors and constituents … each is an important facet of the back office. To do this efficiently and accurately, a high quality back office looks for increased use of technology, as well as automation of workflow and project management. The keys to an effective operation include:

  1. Establishing clearly defined efficiency goals. Continually tracking progress against specifically defined goals and making adjustments as needed. Measure it, evaluate it, make it work for your organization.
  2. Utilizing technology that includes integrated cloud-based CRM underwriting and portfolio management platforms. The goal is zero defects. Continually look to improve accuracy and efficiency by using systems that reduce"‘touches" to the absolute minimum of times, reducing human error and redundancies.
  3. Investing in people. Certainly using advanced technology can enable greater efficiencies, allowing for dollars to be reallocated to higher yielding opportunities. But this technology must be combined with an investment in high quality personnel.

With proper scale and integration, an organization can both improve efficiencies and create opportunities to grow. Here’s an example. Let’s say there’s one team that could easily process two deals a week. Now, with the addition of appropriate, well-designed, well-managed technology, they can process six deals a week. With a hit rate at approximately 15%, now that same 15% is on a higher absolute number.

The Human Resource Equation

Not too long ago, back office work was a very labor-intensive business, involving a lot of form filling, spreadsheets and large filing systems. Today, with more and more sophisticated technology being employed, back office jobs tend to have less drudge work and be more interesting and higher paid, thus attracting a higher caliber of employee.

With almost forensic-like detail, the back office now has the task of pulling information together from multiple sources, at a fast pace, with accuracy. These same individuals must match these investigative skills with talents in customer relations. Today, much of back office work is highly focused, requiring an eye for detail and a nose for compliance.

Whether you use in-house talent, or go outside for this work, perception of the organization is strongly linked to the capabilities and integrity of these individuals. It is important for management to make the investment in these best and brightest, and spending a meaningful amount of time on that function.

Incorporating Highly Automated Systems and Services

Certainly improving the accuracy and efficiency of a back office can have its challenges. Today’s portfolio management system needs to meet strict requirements for both business effectiveness and technological effectiveness to allow the organization to stay competitive. To compete with bigger and more established firms, many smaller- and medium-sized firms are outsourcing many of their back office functions. This allows the organization to leverage scalable infrastructure without the burden of fixed costs.

With a strong, sophisticated technological base, a broader array of functions can now be covered within the back office arena, with the additional benefit of highly sophisticated insights that can be generated and applied to existing operations.

What are the results of incorporating process automation, data integration, and empowered employees? Simply stated … a clear platform for growth.

Barrett D. Carlson
Partner | CapX Partners
Barrett D. Carlson is responsible for both business development and investor relations at CapX Partners in Chicago.

With a background as an entrepreneur, Carlson enjoys trying to help clients grow their own business with the solutions provided by CapX. He began his career working in the manufacturing and distribution industries, which gave him a strong understanding of many of the issues facing CapX’s clients.

Prior to joining CapX in 2004, Carlson was a partner in Capital Concepts Holdings, LLC. He also founded and was the Managing Partner of Nine Iron LLC, a private equity investment company, where he sourced and invested in several lower middle-market investments, including real estate. Prior to that he co-founded Waterstone Consulting, a high growth management consulting and technology services firm serving manufacturers and distributors. Carlson began his career at Andersen Consulting (Accenture), serving clients in the manufacturing and distribution group.
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