IP&E's Carlo Svaluto Moreolo discusses with Milestone Group's Randal McGathey, the increasing demand for technology to manage transparency over highly complex portfolio structures.
Here is an extract of the interview.
Tech solutions needed
This not-so-small revolution, where cost transparency becomes a necessity for pension funds, fuels demand for data-analysis services of all kinds. At the most basic level, pension funds need transparency over their portfolios, which are increasingly complex. This is where organisations such as Milestone Group step in.
The firm serves institutional investors such as pension funds, asset managers, fiduciary managers and investment consultants, by providing digital portfolio analysis tools. It is headquartered in Sydney and has offices in Boston and London.
Randy McGathey, vice-president, says: “We provide the infrastructure that allows institutional investors to run their portfolios and deliver their products. When it comes to providers of delegated CIO solutions, they use our platforms to monitor and manage portfolios of the pension funds they serve.
“Our clients can see their entire portfolios on our platforms, monitor current valuations and exposure frameworks. The platform also allows them to execute asset allocation changes, moving assets from one fund to another. That includes transacting with private equity, real estate or other illiquid investment managers as well as pooled funds, through external managers or directly,” says McGathey.
The fundamental element of Milestone Group’s platform, he says, is the ability to see that total portfolio. This often requires investors to collect and assemble information from multiple sources.
“Building that total view of the portfolio can be a very complex and time-consuming element from a technological and human point of view. Our platform takes care of that at scale. This is particularly relevant to large pension funds or entities that manage several pension plans. The investment strategies they develop result in increasingly complex portfolios.”
Milestone Group’s platform, known as pControl, is used by DB plans as well as by providers of DC plans that offer target-date funds with multi-asset portfolios. The platform helps those providers to allocate assets based on algorithms that determine the asset class weights of each fund, according to asset allocation models and members’ choices.
McGathey suggests that the prevalent methods for portfolio data management are out of date. He says:
“It is our observation that many, if not most, asset allocators rely on spreadsheets and very high-cost, high-expertise individuals to manage the data of their clients’ portfolios. The same goes for pension funds. They tend to buy and customise off-the-shelf solutions coupled with expensive human data effort. We provide a technology-based solution that allows investors to achieve a more efficient and comprehensive view of a portfolio than most practitioners currently offer.”
No doubt, there are plenty of tech-based solutions for portfolio data management on the market, each with its own characteristics. But the Milestone Group case shines a light on the data-related challenges that pension funds and their providers face when managing increasingly complex portfolios.
Overall, the investment data analysis industry still seems relatively fragmented, but it is poised to expand further and become more competitive as a result. The growing need for transparency in asset management is an opportunity for new businesses providing innovative solutions, from cost benchmarking to portfolio analysis.