Operations drive IFM revamp

IFM Investors' focus on operations has helped it become one of the most progressive funds in Australia.

Lounarda David, IFM's high-profile chief operating officer says operations is at the top of the IMF board agenda and the main driver of the $179 billion fund's growth strategy.

Notably, the pension-owned infrastructure and private equity specialist - which has just snapped up Sydney Airport in a $23.6 billion deal along with Australian Super, QSuper, and New York-based Global Infrastructure Partners - views operations as a critical part of the firm.

Such is its cachet within IFM, that David can attract investment colleagues to join her in what used to be known as the back office.

"Operations is transformational," she says. "Some people are happy to trade in the investment side to join an innovative team in building a best-in-class operating platform for both private and public market assets which has been hard for many institutions.

A big challenge for the operations function is that it must continuously evolve and innovate faster than any other component in the life cycle of an investment.

It wasn't always that way.

When David started as a portfolio accountant, investment operations was a very different prospect.

Expectations were lower; so too were the capabilities.

"It was not very sexy," she recounts.

"You got told what to do, and you did it. There was no expectation that you would have ideas or drive what you saw as value.

"Moreover, there was no concept of operational alpha or appreciation that operations can add value to the returns."

Nowadays, to be successful, you need to be a jack-of-all-trades.

Not only do you need to have a good understanding of the full cycle of investment activities, she goes on to say, but you also need to understand the actual assets.

"You must also understand transactions and products from investment, regulatory, risk, financial, and tax perspectives to support the investment teams and generate operational alpha."

So, it is not surprising to see operations now driving innovation and efficiencies.

Managing private assets

IMF has been wildly successful in delivering exceptional performance returns. Over the last five years, it has delivered $29.3 billion in net returns to its investors.

The fund is a major player in the private markets.

David says the operation of these assets can be taxing and requires careful management of transactions from the initiation of the deal right through to deployment of the asset, valuation, and reporting to the investors.

Returns can be dramatically affected as transactions move through an investment cycle.

"If you inefficiently execute a transaction, the transaction will incur higher costs and expenses which, in turn, will reduce the alpha and the return on the investment," she notes.

Moreover, managing portfolios that invest in illiquid assets is particularly demanding.

David explains that constant vigilance and product innovation are required as asset owners continue to diversify their portfolios and increase their investments in real assets and new asset classes.

Importantly, private market assets, including hedge products, require technology that is flexible enough to support the complexity of the investments, regulations, and investor reporting requirements.

David says most of the data required for private market assets like airports come from multiple points in both structured and unstructured formats that have to be converted, normalised, recorded, and enriched in different systems.

This data is then used downstream for valuations, client reporting, and management reporting.

Nevertheless, the systemisation of data for assets like infrastructure, private debt, and private equity continues to be taxing for the industry.

Client reporting is especially tough in an industry where there is no standardisation, classification, or agreed model for assets, especially infrastructure assets that sometimes are classified differently by different investors across the geographies.

For instance, what is classified as an infrastructure asset in some jurisdictions could be defined as private equity in others.

"As you can imagine for a business like IFM, the standardisation of private market asset data is pretty important, especially when you have over 570 clients in different jurisdictions, dealing with different market practices, regulations, and investor sophistication and reporting requirements," David says.

"So, delivering a variety of investor reporting and regulatory reporting can be difficult and inefficient.

David argues that to have an efficient and scalable private market business, strong data governance and a consistent approach to data taxonomy are critical. So too is accommodating bespoke data points and requirements.

The path ahead was clear.

Designing solutions

As part of IFM's transformation program, IFM transformed into a data-centric environment that allows David's team to provide detailed reporting to investors and management.

It also provides the investment teams with improved analytics, risk analysis, and insight in managing their portfolios and assets.

"This is particularly important as the demand for data and reporting continues to increase by both investors and regulators," she adds.

"Not to mention the high volume and variety of the data points that need to be recorded and enriched to create a data set."

Layer on top of that the arduous task of feeding the data into risk systems that do not have the same logic and attributes.

IFM has always had an operating platform that can cope with different investor requirements, changes to regulatory reporting, customisation, and tailoring to different needs.

But David states that by bringing data governance and transitioning from multiple disparate systems to a single integrated multi-asset class investment system, IFM has gotten rid of duplication, reduced operational risks and reporting costs, and increased efficiency.

Operations is now a business enabler, strengthening IFM and making it more competitive.

One of the demanding aspects of working in this high octane environment is spotting potential problems.

"Because of our industry experience and knowledge of clients and their administrators as well as the technology solutions, we can understand our clients' challenges and develop workable solutions that fit in their operating models," she adds.

"It's up to us to say you can't do things that way - because these are the challenges the clients are going to have. How about this approach?"

Given that IFM has unique systems and requires multi-skill expertise, it is not surprising that finding the right people to work in operations is no easy task.

She gets handed lots of CVs.

Recently, David has been hiring more in New York and London than in Australia

People looking to land a job with IFM should keep one thing in mind.

"They must be client and data-centric," says David. However, this is not the main requirement.

"It's easy to do what everyone else does; it's hard to plan for the future. People who are forward-thinking, innovative, like a challenge and can create new opportunities are who we want in ops."