COVID 19 – The Ultimate Black Swan Event for Stress Testing Your Firm’s Operations
A black swan event in finance is characterized by its rarity, unpredictability, severe impact and the belief that maybe – just maybe – it was actually obvious and we should have seen it coming. This sounds quite a bit like COVID-19.
Nassim Nicholas Taleb, a former Wall Street trader who popularized the phrase black swan event in his 2007 book on the subject, suggested that everyone should assume a black swan event will occur at some point and plan accordingly. In the wake of COVID-19, advance planning made a difference. Asset management firms that had worst-case scenario contingency plans backed by robust systems were able to respond more quickly to the pandemic’s operational constraints than their less-prepared counterparts.
Thriving in the face of adversity
Asset management is a “high-touch” industry built on relationships. Collaboration with ecosystem service providers and communication with clients are essential for success. Moving from a tightly knit group operating out of a single office to conducting business with the entire staff working from home raises various challenges even for well-prepared firms.
First and foremost are the technical and operational issues of running a business and supporting clients, whose requests have likely increased as they face their own challenges. There is also the need to ensure the mental health and well-being of your staff so they can continue to be productive under stressful conditions.
Whether you are already operating efficiently or still adjusting to the new reality, following are three actions you can take to help you thrive (and not just survive) in these challenging times.
Get your own house in order - A manager at a Big Four accounting firm in London noted that since the coronavirus outbreak, many family offices have been seeking advice about corporate governance, putting adequate systems in place, and getting their IT cyber security to work remotely. At the same time, they are trying to deal with the high operating stress on their employees caused by market volatility and the physical difficulties imposed by lockdown.
Technology may well be the easiest issue to solve. At most firms, IT staff have been able to set up and stress test the security of remote connections so employees can access critical information. And the widespread availability of conferencing apps, file sharing tools and other technology has enabled continued collaboration.
A more difficult challenge is ensuring employees have not just the tools, but the support they need to be productive. In fact, reduction in employee productivity and impact on the workforce was one of the top three concerns cited by financial leaders in the US and Mexico in the first PwC COVID-19 CFO Pulse Survey. Establishing new protocols for communication, staying in touch through regularly scheduled online meetings, and hosting remote ‘happy hours’ can help employees feel connected and ease the emotional stress of working from home.
Focusing your energy internally to get your firm’s technical and human-resource issues operating on an even keel are the fundamentals necessary to achieve any semblance of business as usual.
Do contingency planning - It’s never too late to be prepared for the unexpected. Although restrictions are beginning to ease in some cities, others continue to be under lockdown for what is likely to be several more weeks. For firms that approached the pandemic with a short-term mindset, planning for the longer-term scenario would be prudent.
Conduct a SWOT analysis to identify strengths, weaknesses, opportunities and threats. Can your current operation sustain another month of lockdown? What actions need to happen for business continuity if the current environment is the new normal? Can you close books and prepare financial reporting documents remotely? Are changes needed in your valuation process? Is it time to move IT infrastructure to the cloud? These are among the questions that all firms should be discussing now.
Contingency planning also includes human resources. Firms that run lean and mean need to be prepared for what happens if an employee gets COVID-19 and is out of commission for an extended period. Cross-training employees and using systems with automated workflows can ease the burden in the event a critical employee is taken ill.
Another aspect of contingency planning involves mitigating reputational risk. Maintain ongoing communication with clients as well as with your business ecosystem of third-party vendors, custodians, banks, fund accounting firms and others to understand their issues. Be proactive to identify anything that could impact your business.
Identify hidden opportunities - Ingenuity often rises to the top when times get tough. COVID-19 has shown just how enterprising companies can be in a time of need. Factories that made perfume or assembled cars, for example, have retooled to churn out much-need hand sanitizer and ventilators.
Agility is more important now than ever. As noted in the PwC Pulse Survey, “Once the COVID-19 situation stabilizes, firms may not be able to compete if they haven’t built systems, products, and processes that meet client demands in the “new normal.” In other words, COVID-19 might well be the jolt firms needed to modernize internal systems and strengthen client communications.
Take advantage of the digital transformation that is revolutionizing the asset management industry. Look into solutions like FundCount that enable you to operate in the cloud, automate manual functions, generate client reports on demand and connect to apps that expand service offerings. COVID-19 poses many challenges but it may also provide opportunities you never expected.
Contact us to learn how FundCount’s accounting software delivers operational efficiency and insight to help your business thrive.