How can institutional investors drive innovation in their trade processes and optimize their operations? In this latest blog post, we steer clear of the widely recognized Spiderman meme when discussing the challenges faced in investment trade processing and introduce a more efficient approach to consolidating these operations onto a unified platform.
By: Garret Bluish, Client Solutions Associate, Client Solutions Group
When contrasting institutional investors with retail investors, the disparities in purchasing power, market sway, available resources, and trading volume percentages are massive. Institutional players possess many tools that can be both boons and banes. In the realm of institutional trade processing, it is imperative that tools are swift, dependable, and enforce adherence to protocols by all members of the investment team. This blog delves into the challenges allocators face in testing trading solutions and highlights key aspects that allocation teams should consider when seeking to revolutionize their trading procedures.
While Excel remains a staple in investors' toolkits, advancements in trade processing offer tangible solutions for streamlining multiple trades across various manual entry systems or spreadsheets. The increasing use of spreadsheets in investment divisions heightens the risk of errors. To address this, establishing an integrated platform empowers investment teams to seamlessly create, monitor, and execute trades. For instance, imagine a scenario where a CIO proposes a shift in asset allocation during an investment strategy meeting. This prompts a comprehensive assessment of the timeframes, actions, and the reallocation amount among investments. Subsequently, the team refines their strategies to efficiently complete the trade process and rebalance the portfolio. Under a unified system, the trade process is charted throughout and given appropriate milestones for specific trade approvals. Without this system, shuffling spreadsheets, email chain approvals, and word of mouth can become one big Spiderman meme where everyone is pointing and a clear lack of trade process ownership exists.
With the growth in alternative investing, many clients today also want to be able to compare trade process workflows across different asset classes. This could amount to simple acknowledgments of capital calls and distributions or more in-depth trade processes requiring multiple approvals and oversight through monthly or quarterly subscriptions and redemptions. With spreadsheets, emails, and manual entries to make these changes, errors can arise and cause added problems for allocators.
Vidro allows investors to enter trades through our platforms’ transaction editor and customized workflow tools to route specified transactions across the various approval stages, guidelines, and compliance checks, and then provide final instructions to custodians or administrators. There are two layers of approvals in Vidrio.
The primary approval is done by the operations team or portfolio manager, and can be configured to review and modify the trade along with the following steps:
- Preview trade documents
- Add or remove trades from the process.
- Approve the trade and move to the instruct step in the workflow.
In the second layer, known as the instruct step, the CIO or senior operations team signs off on the movements from the first step of the process. Once these portfolio movements have been signed off, trade documents are created and sent to the administrator or custodian.
A critical differentiator of this methodology is that not all trades within a process need to be instructed at once. Portfolio trades can be automated through approval instructions or enter a holding pattern and await approval until approval is given by the investment team. A clearer visualization of the trade process is depicted in the screenshot below, illustrating how users of the Vidrio platform can streamline their workflows through 4 distinct steps: approval-->instruction-->document signature-->document confirmation.
Once a trade process has been approved and documents are generated (e.g., trade instructions and trade blotter), these files can be prepared for e-signatures by effortlessly downloading them from the Vidrio system, digitally signing, and then simply dragging and dropping them back into Vidrio for safekeeping. External third-party custodians or administrators can be promptly notified to review and approve the documents, ensuring no missing files and providing a timely alert to the third party.
Vidrio can generate both trade instructions and trade blotters based on information entered during the setup of the portfolio planning process. Reports can then be sent to administrators or custodians linked at the portfolio level. Trade processes are highly configurable and made to fit the client’s operations.
Be on the lookout for additional blog spotlights as we highlight benefits and innovations that help allocators improve asset allocation strategies.
