Five Questions for: Envision Financial Systems Executive Vice President Brian Jones

Brian Jones, Envision Financial Systems Executive Vice President

In The DI Wire’s latest installment of “Five Questions for…” the editorial team interviewed Brian Jones, Envision Financial System’s executive vice president. Since 1994, Envision’s software and services have helped asset managers and financial services providers automate their businesses with open systems and access to real-time data.

As interval funds increasingly lead fund launches, investment managers are figuring out how to manage daily valuations – allowing their strategies to be offered within the registered fund marketplace rather than only on the private fund market. Jones discusses how to handle the complexities of interval funds and how Envision is helping clients manage and grow their businesses by providing software and services that assist with the industry’s ever-changing landscape.

The DI Wire: What are the biggest impacts interval funds are having on service providers?

Brian Jones: Interval funds are growing in popularity, but they are still relatively new to the retail market. As a result, fund service providers are facing challenges when trying to support them on their current record keeping systems. There are two main issues we commonly see providers experience when working with these funds:

Where to support them operationally. Fund servicers typically separate operations for traditional funds and alternative funds. Traditional fund operations are usually geared toward processing NSCC networked accounts, omnibus accounts, and check and app business. However, interval funds and other alternative fund products require very different processing and technical solutions. Alternative shops are used to handling hedge funds and other products that require partnership accounting while interval funds are 1099 reportable. Therefore, handling interval funds presents challenges in either shop.

Automating manual processes. Without the right servicing tools to handle both fund operations at scale, firms won’t be able to capitalize on the growing demand. Interval funds are forcing firms to innovate if they want to grab the growth. Here, innovation means finding ways to support interval funds in a scalable manner – higher volume than alternatives operations, but with far greater flexibility than traditional operations are used to.

DIW: What are the biggest points of friction in servicing interval funds and other retail alternatives?

BJ: Too much manual processing. If you try handling the investor subscription process in a retail distribution environment, you may find your operations quickly bogged down.

What’s needed is straight-through investor onboarding processes. More common, unfortunately, is some automation on the front end (digitized subscription document and information gathering) but manual work on the back end – both setting up accounts and dealing with not-in-good-order data.

Beyond onboarding, other retail alternative product processing such as capital calls, tender offers, and redemption proration are likely handled with some degree of manual tracking. This is unless the investor recordkeeping technology can truly systematize these processes while maintaining flexibility to accommodate complex products.

DIW: How is Envision helping automate the investor recordkeeping process for alts?

BJ: We started in the mutual fund space 30 years ago. Throughout our history, we’ve leveraged everything we’ve learned about staying flexible and have used it to develop capabilities to support other product types, including alternatives, collective investment trusts, local government investment pools, and college savings plans. We’ve always taken the view that day-to-day operations – regardless of the product type – should be possible using one platform that accommodates individual product intricacies.

For example, retail ’40 Act alternative investment products like interval funds, business development companies, collective investment trusts, and other fund types can all be processed using a single instance of our investor recordkeeping system. Further, all the disparate processing requirements of each fund type can be automated for maximum efficiency.

For alts, your team can: establish trading calendars for specific investment and redemptions dates by fund; enter trades as they come in and put them in a pending status, ready to be processed on the next valuation date; automatically calculate and process tender proration and redemption holdback; use the Depository Trust & Clearing Corporation’s alternative investment product, or DTCC AIP reporting and trading services; and leverage application programming interfaces, i.e., APIs to create a straight-through subscription process.

DIW: What challenges are distributors facing with retail alts?

BJ: This is a new world for traditional distributors of ’40 Act mutual funds. Alternative investments are becoming more prevalent due to investor demand for greater returns, but the products are more complex and operate differently. Further, the alts product structures can be challenging and make it difficult for self-clearing broker-dealers to integrate these products into their current sub-accounting  processes.

Despite these difficulties, retail investors still expect retail experiences. This means they are looking for easy investment capabilities and ubiquitous account access. To successfully attract and retain the retail clients, distributors need to provide the pain-free user experience that the investor segment is accustomed to receiving.

To meet these expectations, we are encouraging distributors to focus on digitizing their ecosystems. Whether that’s creating their own digitally focused network or aligning with platforms, such as iCapital, CAIS, Schwab, or AIX. Working with partners can especially help broker-dealers handle onboarding processes that prove challenging with their existing omnibus systems.

DIW: What emerging technologies do you see on the horizon that would be beneficial to the retail alts industry?  And what do those affiliated need to do to prepare for future innovation?

BJ: The main thing is to make sure your product development efforts (if you’re an investment manager) or your operations (if you’re a service provider) aren’t going to get bogged down by the demands of servicing complex products.

Looking further ahead, we see distributed-ledger technology and tokenized investments as the next frontier, not because it’s flashy but because of its potential to unify work across multiple types of firms – custodian, distributor, transfer agent, investment manager, and more. We are genuinely excited about the possibilities this technology holds for transforming the industry and driving innovation forward.

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