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Article13 Oct 2021

Understanding the Importance of Operations in a Merger

For asset managers going through a merger, it's important to understand why operations is critical aspect of a successful consolidation

Consolidation has been one of the biggest trends in the asset management industry over the last few years and that looks set to continue as firms navigate a web of complex drivers that are structurally changing the industry.
Pervaiz Panjwani, Global Co-Head of Fund Services at Citi Securities Services discusses why operations is a critical aspect a successful merger.


Citi has supported many managers undergoing a merger. In your experience, why is operations so important?

Operations are fundamentally important because they underpin an asset manager’s business and strategic objectives. Without a solid operational foundation, firms face potential underlying risk that can derail their merger plans. For example, hidden operational costs can lead to larger setbacks, and operational failures can give rise to gaps in client service potentially putting transitioning clients at risk and damaging the firm’s brand. Additionally, the quicker a firm can transition to common systems, platforms and processes, the faster they will be able to realize the benefits of scale and cost reduction. So, prioritizing operations during a merger can help firms create a solid framework to support a successful merger.

What are the key considerations for firms when they merger their operations?

Broadly speaking there are five key aspects that should be considered when merging operations: back-office functions, technology and data, people, geographic footprint, and service providers. Clearly mapping out these areas can help managers understand the true scope of their operations and aid in the development of their ideal future operating model and the framework to approach the transition.

How should managers approach the prioritization process when formulating their transition plan?

Prioritizing operational areas for transition will be different for each asset manager and is highly dependent on the unique processes, related asset classes, systems and their capabilities. At a high level, firms need to have a holistic view of the current state of operations. Not only can this formulate the broader transition plan, it can help to uncover opportunities for efficiencies and cost savings, such as identifying duplicate functions and processes for automation.

Early in the consolidation process, it is important to review the operational considerations that will have an impact on the front office. Other operational aspects can follow in prioritization. For example, standalone components of the middle office can be consolidated incrementally, offering an opportunity to re-evaluate if the firm should continue to retain specific middle-office functions or should consider outsourcing them to a provider.

Overall, when determining what to prioritize, firms need to ensure that their roadmap is designed to create minimal risk and business disruption to the business-as-usual environment.

Clearly merging operations creates challenges but are there opportunities as well?

Absolutely. Often managers look at merging operations as a burden. To the contrary, they present strategic opportunities by allowing firms to reimagine their operating model to create scalable solutions that support their ambitions and future growth. One of the key drivers of consolidation is the need to increase efficiency to help control costs. It is important for firms to be open minded to changes to their existing model. This may include re-evaluating the level of outsourcing engagements, the technology being used and where activities are performed.  In my experience, firms that draw on the experience from both organizations to develop a “best of breed” approach are the most successful going forward.

How can service providers help asset managers undergoing a merger?

Consolidating front, middle, and back office operational processes is cumbersome for asset managers, and today service partners can do much of the heavy lifting. Firms can mitigate a drag on their resources and time by appropriately leveraging the supporting technology, resources and transition expertise their providers offer.

At Citi we have partnered with a number of asset managers going through mergers. Drawing on the strength of our unmatched global footprint and leveraging our modular middle office, accounting, and Citi Velocity Clarity data platforms, we have created solutions that meet our clients’ current and future needs. Combined with our global service model, this helps ensure speed of execution and operational optimization for our clients and has been key to our collective success.




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