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Family Office Investment reporting – A practical guide to insourcing vs outsourcing.




I recently moved my business model to focus more on family office reporting workshops. The reason being, I found the most impactful element of previous, longer-term engagements was the review and priority setting. The subsequent output of these workshops is a recommendation on how to move forward (and the technology to use) and to give the office the opportunity to drive the best version of their reporting configuration.


One thing I have pulled back on is the onboarding. Not because I don’t want to add value in that area, but because of my own education experience when using certain platforms - onboarding to new technology is the most beneficial exercise a family office can do. It requires a commitment of time and effort (human resource) to aggregate and disseminate all the current, confusing, and dispersed information into one place so it can be delivered into a single software solution.


I have seen onboarding create new roles for internal staff, increase the knowledge of the portfolio across other stakeholders (in particular the next gen) that until now were given a static monthly report. The process also deepens relationships between the office and their trusted advisers as they work towards better infrastructure.


A recent Citi survey provided some indication of where families are insourcing vs outsourcing (below) across the whole office.


I thought it worthwhile to provide a few pointers those aspects that family offices are doing for themselves, and those that are being outsourced to specialist. And the decisions you can make to determine the method that suits you.


Insource:


  • Resourcing - If you are allocating a dedicated resource to manage the data onboarding and ongoing management of the software. This resourcing question should also cover back up staff and mitigating key person risk.

  • Technology heavy lifting levels – some platforms claim that there is no need for a “managed service” to run the platform maintenance as the technology is sophisticated enough.

  • Control – if you want to retain (or retain at a future point) the license and management of the software then you can insource.

  • Automation – if all the custodians and banks feeds are set up and the manual feeds are part of a set process. We are seeing an increase in the use of software for automation of those without data feeds, especially alternatives that required data extraction from fund manager portals.

Outsource:

  • Technology – unless you’re a power user, some software solutions are very difficult to run internally as they are highly configurable. Having someone that can drive the software from the start can reduce a significant amount of frustration. I use the example of Bloomberg terminals – unless you take the time and use the education resources, you may end up with the world’s most expensive stock checker and messaging service.

  • Resourcing – if you can’t give it to someone as a “whole of desk” role, the other option is to create a hybrid version - giving part or whole responsibility to a firm that specialises in managing the software “instance” or license. This is particularly true for imbedded offices (those within an operating business) because your staff already have full time jobs.

  • Level of Automation – the number of APAC family offices that had a hybrid insource/outsource model for investment reporting was very high (28%) vs Europe (7%) and North America (15%). This may be because the level of heavy lifting required in APAC was higher due to the lack of connectivity between custodians. This makes it a highly manual aggregation of data and they prefer the use of managed services or to mandate to wealth managers or private bank suppliers to assist.

  • Incumbent Counterparties – with a move by some service providers to actually assist with portfolio administration there is a growing ability for family offices to outsource to their current trusted advice relationships. The big 4 are all attempting in some way to bridge the admin gap, some going as far as teaming up with global investment platforms.

  • Control – if you’re happy to assign a third party to manage the data and configuration. It’s also important that you are comfortable with that party’s data security – internal and external. Extra due diligence is always a good idea, get them to send all their internal policies on who can see what.

  • Redundancy and key person risk – when asked on the main reason a family may choose to outsource reporting, one of the main one cited is the fear of losing a key internal person (and the expertise) whilst they remain the sole “source of truth”.


A lot of the above can be determined through a review of the office, one family office named this process well: “what we were, what we are and what we want to be.”


Hall Road has a workshop for those looking to outsource this review, you can find out more via this link.


Cheers


Shaun.


“Hall Road Investments Pty Ltd is a Corporate Authorised Representative (CAR No. 001279456) of Non Correlated Capital Pty Ltd (AFSL No. 499882). Shaun Parkin is an Authorised Representative (AR No 001279458) of Hall Road Investments Pty Ltd (CAR No. 001279456) and is authorised to provide general advice to wholesale investors”

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