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Working with ATP, Citi has developed a single data management platform that can facilitate risk management across the life cycle of the investment process, says Nick Roe

In 2007, Citi was asked by the Danish pension fund ATP to provide them with a unique ‘one platform' solution to assist in splitting alpha and beta investment management processes across 10 different strategies. The obvious reaction would have been to decline. However, it became apparent that Citi was in a unique position: all the building blocks of the services were here in capital markets and global transaction services (custody, administration, middle office).

We believed that ATP was potentially the first of many pension funds and other institutional asset managers that would be moving towards a model that would redefine the boundaries between the traditional and alternative asset management classes. Hedge funds have for some time managed long-only assets, and in our view it was only a matter of time before the traditional managers looked at the alternative class.

The first step was to create a consultation process for clients which would deliver a set of tools to help empower pension funds, endowments, insurance companies and funds of funds to allocate capital dynamically across asset classes, while retaining full transparency and control, whether managed internally or externally.
We looked at two possible client scenarios:

Scenario 1: Pension Fund A is looking to gain exposure to active alpha or absolute return strategies, and will bring the investment talent in house but outsource all post-trade execution activity (as in the case of ATP).

Citi has previously facilitated the formation of specialised fund cells for each investment strategy and was able to assist in the formation of the highly regulated fund cells as Luxembourg SICAV funds. Through our global transaction services group (GTS) we provided a platform of technology (open prime) to deliver a combination of services (prime finance, middle office, fund administration and custody) in one portal.

Scenario 2: Pension Fund B looks for assistance in their conversion from 100% beta to an allocation with an initial percentage of investment to active alpha and absolute return strategies. Due to technology and resource limitations they want to allocate funds to external managers in a managed account format, and to direct the investment to the managers and strategies they choose and outsource all operational oversight and governance post investment to an external provider. This strategy needs to align with the overall investment guidelines and macro exposure of the pension fund.

Citi was able to assist in helping set up an independent and separately regulated vehicle to manage all activity after the investment decision. In consultation it was decided on a strategy that would set up a separate company vehicle (Ivaldi), while contracting all investor services with Ivaldi through the portal developed for other clients. Ivaldi charges a management fee for its services (risk management, general operational support).

While these solutions were tailored to client needs, the technology could deliver a generic set of services in one place to an end-user with little fuss. A number of mid-sized and single asset class clients have benefited from the ‘plug and play' technology developed during the ATP project. However, the larger and most complex organisations need a larger and more complex solution: while we deliver off-the-peg with Open Prime, the bespoke solution is attractive to many.

The key to a project of this type is the initial analysis. What we establish is a foundation of workflow and infrastructure needs. This ultimately has to deliver the technology set that would act as the front-end solution through to the delivery of all post-execution service data.

Phase 1 looks at speed to market. What does the management group require in terms of fund structures, roles and responsibilities (internally and externally), market access and data requirements, middle office services and general integration requirements? This process requires us to act as a virtual COO in a similar management company with full-time resources. This project typically takes 6-10 weeks.

Phase 2 is the development of the foundation, looking at the future state and scalability blueprint and establishing a best of breed organisational model with portfolio management and risk requirements. This is where the findings of phase 1 are applied, establishing a future blueprint of where the group want to take the management platform. This typically takes 6-8 months.

Phase 3 is the execution; how Citi helps the manager capture its ‘edge', the delivery of the workstation and entitlement requirements, the data modelling and general infrastructure and disaster recovery considerations. These get wrapped up into the delivery of the ultimate one platform that captures the life cycle of the investment management process from execution through to the delivery of the support data.

The project completion requires a significant amount of dedicated resource, and as such it is a large undertaking: any institution that embarks upon it must have total commitment to change and see diversification of asset management as a longer-term strategy. For ATP a 41-person team across five geographical locations was used over the course of the project, with 14 different technology work streams and 35 system interfaces configured or built.

We believe that Citi has redefined the way that asset services are offered throughout the life cycle of the investment process, giving end users the ease of a single portal for data management, in the form of modular, open and flexible technology and service architecture.

Nick Roe is global head of prime finance at Citi


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