Australian Unity Investments Serves Diverse Client Base, Capitalizing on Technology to Grow Rapidly

Originally published March 3, 2008

Australian Unity Ltd., a diversified services firm with businesses in health insurance, retirement living, financial planning, and investment management, is on a growth path. Its investment management business is growing rapidly, with funds under management rising from $2.2 billion Australian (then $1.7 billion US) three years ago to about A$6.7 billion ($5.89 billion) as of January 2008, making the firm an emerging player. In addition, Australian Unity Investments has entered into joint ventures with other investment firms such as Platypus Asset Management (Australian equities), Vianova Asset Management (a fixed-interest specialty firm) and Acorn Capital (an Australian micro-cap specialty investment firm), all in 50-50 partnerships that give both sides equal input. The investment firm also takes a different approach than most to the use of technology in its operations, as well as outsourcing. Global Investment Technology spoke with Mark Pratt, Chief Operating Officer, Australian Unity Investments.

GIT: In today’s market environment, what most preoccupies your thinking as a chief operating officer? What is your biggest challenge?

MP: The biggest challenge that I think about so much is on the client-facing side, where we have a number of layers around our clients. How can we continue to provide the best, high-quality service to those clients who have differing demands because they’re in different lines? What’s the most effective, efficient, and optimal risk environment? Some institutional clients like to know their investment performance very quickly. They want to know it at a greater level of depth than our retail clients. They want access to the fund managers. At the other end of the spectrum, we have the direct retail investors, who want consistency of return and information provided when they need it, both regularly and if they call and want to know something specific.

We’re largely an intermediated business. Most of our distribution is to financial planners via our own in-house distribution force. Financial planners are generally somewhere in the middle; some want to really understand detailed investment performance information, others focus on tax efficiency, or on really pulling everything together for their clients and their different fund managers, and then providing a report. So we become an information conduit more than anything else. That in and of itself provides its own challenges in a communications sense.

And then, we have investment platforms. Financial planners in Australia are sometimes aligned with certain investment platforms where they will have a range of investment options on that platform and will use six of them, but the platform itself will do all the reporting and pull everything together rather than that financial planner having to go to each of those fund managers and pull information together themselves. They’re the other part of our client base. We need to provide effective processing, confirmation and reporting of transactions to them as quickly as possible and as automated as possible.

From our perspective, the challenge is building a model to service all those different clients, with all those different demands at different times. Does the operating model service them effectively and have the right communication to each customer? Do you have the right people talking to them, and the right interfaces with them technology-wise? How are you building all of that? At the platform level below that, how are we operationally set up to service that? Do we have the ability to provide information in the timeframes that our clients want it? How do you manage and pull everything together so there are no silos presented to our customers?

GIT: How large is the firm?

MP: We’re 130 people. We’re not Citi or Northern Trust. We’re a fund manager whose smaller size is one of our advantages. We’re able to move quickly and possibly do things that other organizations either may not consider or wouldn’t be able to do as quickly because that is a function of their size and their operating model. We certainly have an operating model that is focused on the end customer – that is driven by customer demands, rather than our operating model determining what customers get.

GIT: What systems were in place when you began your role? How did you make sure that you have the right systems and methods in place? What have you changed?

MP: In the last three years the main client-facing technology we had was our unit registry system which serviced all our direct investors, financial planners and platforms. We just fully replaced that technology in December 2007. Before that, there was no real strategy for what to do with the legacy technology we had in place. Unit registry is something that global custodians in Australia have struggled with for a long time. It’s different than institutional unit registry. It’s high-touch, more complex and a big investment. We considered outsourcing our unit registry, but decided the best way to service our clients was to do it ourselves. We implemented a technology named OneVue, from Pentafin, an emerging technology company in Australia.

GIT: What is your vision for leveraging technology to improve operations?

MP: I’m not a technologist, I’m an operations person. My view of technology is it’s a business enabler. It has to be there to drive efficiencies for the business, not implementing technology for its own sake. Our unit registry is our core platform. It provides a base to hold all our client information, where now we can interact with that technology, so there’s one source of truth for data, and there’s minimal manipulation around that data so we can at least minimize the data cleansing that is necessary.

Our implementation of DSTi’s HiInvest is an example of how we are leveraging a technology rather than making a platform investment. With this type of leveraging, we can provide areas of our business with tools to make decisions faster, based on accurate information, so we can provide quality outcomes to our clients. This is about giving our portfolio managers the ability to derive better returns for our clients through having more information available to them. We’ll do some different things. We’re making a significant investment in our website so our clients can interact with us much more actively than before and access their own information, download presentations from our fund managers or see their blogs.

GIT: Does an operational infrastructure help support consistent investment results or is it just the decisions of portfolio managers that do it?

MP: Our use of HiInvest, with our joint venture partner Platypus Asset Management, is the perfect example of how operationally we support our investment managers, whether they’re our own in-house managers, or ones in a joint venture, in ensuring that they’re delivering that outcome in the most effective, risk-averse way. With HiInvest, Platypus has already eliminated one technology platform and may be able to further streamline so they use one key operating system to do what they want quickly, efficiently and with much lower risk. When we began the joint venture with Platypus two years ago, they didn’t have any institutional clients. They had a great track record but were looking to grow their business. They had A$60 million in assets under management, and now they have about A$1.5 billion. We provided operational expertise and support for building platforms that has supported Platypus’s growth and helped them manage more money.

GIT: Are there IT environment issues that are unique to Australia which may not be the case in other markets?

MP: Australia has a challenge of legacy systems in the managed funds market. For the Australian managed funds market, the barriers to improving the effectiveness and efficiency of interactions significantly are very large. It’s become a very sophisticated market in the products it offers.

GIT: What aspects of your operations do you outsource or would you consider outsourcing?

MP: We outsource for all our securities-based products, including fund accounting and unit pricing functions. We outsource in every line of business except our direct property business. We outsource to National Custodian Services, the largest custodian in Australia and part of the National Australia Bank. I’m open to outsourcing anything. The main consideration for us is how that impacts our client service. The issue is whether we can absolutely trust the outsourcing to go from us to our provider, then direct to our client. That has inherent risks. It’s our reputation at stake, not the outsource provider’s, and it’s our fiduciary obligation. Sometimes outsourcing, while more efficient, can introduce an increased number of handoffs. While efficient in some places, it increases your risk in others. That’s the tradeoff you have to work through. We did that with unit registry. We felt that while a custodian could do everything we wanted them to do, including transaction processing and producing statements, we wondered how they would interact with our call center and whether they could guarantee they would have real-time information for our call center to serve clients at all times. What wouldn’t happen if this didn’t work?

In the end, the outsourcing model became more fragmented than doing it ourselves. With fund accounting, for example, doing statutory accounts for all our investment products — we don’t have overly complex products — it is high-turnover, churn work for want of a better term. Our outsource provider does this well for us and for all their other clients. The cost benefit, that risk efficiency ratio, certainly lands on the side of efficiency against risk. Unit pricing is the same.

Because, at this stage, we have vanilla products, we have minimal risk around that and have our own controls to supplement the outsource provider’s controls. My view of outsourcing is if people do it well and for a number of people, and the model you’re asking them to do for you is not dissimilar to the majority of their clients, so they don’t have to change or tailor anything, then it should be an easier decision. If you go to an outsource provider and they have to tailor more things, then the risk efficiency profile changes.


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