Back office solutions: a must for every asset manager

There are three general components to most firms offering financial services, namely the front office, the middle office, and the back office. But why is the back office so important, especially in this day and age, and why are back office solutions often considered mandatory tools in the fund management space?

The back office plays a key maintenance role

Generally, the back office takes care of administrative duties, and does the number-crunching in accounting. There are some companies that integrate middle office tasks into the back office – these include, but are not limited to the processing and clearing of transactions. It depends from firm to firm, but the commonality therein is that the back office handles a lot of company maintenance-related tasks. And it is the back office that often serves as the proverbial straw stirring the drink, an often-overlooked, yet integral reason behind a company’s solvency, or lack thereof.

A good back office is cost-effective and minimizes costly errors

One reason why fund managers turn to back office solution providers is to save money, while minimizing the possibility of costly human errors. Hedge funds and other related companies deal with millions worth of money in their transactions, and a simple error could lead to a myriad of others, with money flowing down the drain as a result of these mistakes. And it can often be quite an expensive proposition to run one’s back office in-house.

Small- and mid-sized companies can benefit most from back office outsourcing

Although any company, regardless of size, can benefit from outsourcing their back office work to a third-party asset services firm, it is the smaller to mid-sized companies that have the most to gain. This eliminates the need to shoulder exorbitant fixed costs for various back office tasks, and allows them to make more inroads in a financial space that keeps getting more and more competitive.

To gain the most benefit from back office solutions, it is important to select one of the top third-party firms. They must have solid experience in the fund administration industry, and a great combination of skilled personnel and top-of-the-line proprietary solutions that hedge funds can leverage to their advantage. Many companies, including a good number of small and mid-sized ones, have reduced human error, saved money, achieved operational synergy, and caught up with their larger competition, thanks to top-tier products and platforms provided by the best asset servicing firms.