The back office evolution in the Alternatives industry

Back office work isn’t appealing, so they say. It doesn’t have the excitement of client facing roles, nor the dynamism of marketing or product development. When it runs seamlessly, however, the business is on the right track to success. 

Back office is a business cornerstone. It helps to boost productivity and keeps costs low and, when integrated strategically, it can be an innovation enabler too. What could happen if regulatory compliance, accounting, IT services, clearance tasks or even risk management weren’t done in a timely and accurate manner?  

Like any other business function, the back office is changing. Times are calling for flexibility on how to carry it out as well as for cost-optimisation, technology embracement and digitalisation, and attention to both teams and investors’ experience.

Take a couple of minutes to think of how ironic this fact is: although decentralised organisation structures are more and more welcomed to quickly respond to the acceleration of change, the digitalisation of the business, contrarily, calls organisations for managing data with a centralised approach. 

Logically, business digitalisation doesn’t happen overnight. It requires digitising information, a progressive shift to digital ways of working and new engagement models with employees, clients and other stakeholders. And, ultimately, the inception of new business and revenue models. 

This article is about data, the intangible asset of our time, and how it is propelling major change in the Alternatives industry’s back office function. Indeed, back office has gone from being the synonym for paper processing and storage to being the business guardian. While it appeared not to be a business’s focus area in the past, it’s more and more crucial for running the strategy or staying compliant/relevant, for instance in mainstream matters such as ESG.

The Back Office Transformation


The back office function is changing

Tracking the productivity and performance of the back office function can be trickier than  measuring how front office teams perform. The need for tracking becomes even more crucial when the business has chosen to co-source or fully outsourced this function. And even, sometimes, the back office is blamed for being undermanaged. 

In the alternatives industry, regulatory compliance and tax reporting requirements have x-fold, and the volume of data to handle has multiplied due to the variety of stakeholders and counterparties, and the multijurisdictional nature of investments. For instance, managing a pan European fund with 100 real estate assets and at least the same number of vehicles using a spreadsheet isn’t viable anymore. 

Accounting, as a consequence, is more and more complex. The once ugly duckling of finance tasks, oftentimes considered secondary or non-core, is increasingly strategic for business success and has more interdependencies with other parts of the business such as tax. 

Digital technology powered by datathe commodity of this centuryis almost a staple in back- office management nowadays. It is the right hand to any business that wants to properly manage the overwhelming amount of data flowing as well as to effectively estimate workload and resources allocation. 

Real-time is arguably one of the most advantageous capabilities brought by digital. Once the information is collected, these systems can process data and deliver insight immediately, so decision making for varied reasons happens quickly and efficiently. Also, with the help of artificial intelligence, technology for data management is becoming more sophisticated and even able to learn by itself. 

Thanks to this development, alternative players are answering increasing investors’ demands for faster and more agile reporting while also mitigating the operational risks that this demand brings. 

Among some advantages of real-time, one can think of schedule tracking, activity monitoring, work volumes change anticipation, work processing and the collection, processing and storage of data for regulatory or compliance matters that, in turn, can also be automated. A powerful tailor-made dashboard, for instance, will provide a real estate fund manager with a holistic view of all compliance duties, centralised. 


The data-driven back office alternative…in Alternatives!

Alternatives, like any other financial services industry, live in stormy times. As we referenced above, there is increasing scrutiny from regulators for timely reporting and compliance to complex new regulations. To that, one has to add the need for upgrading risk management, reducing costs, catching up with the digital wave, upskilling professionals and retaining talent. It seems like all came at once. 

And, stoically silent, behind the scenes, back office works for those tasks to be accomplished, right and on time. But the back office is navigating the sometimes wavy but exciting waters of transformation, the one of silicon, data and algorithms as well. How could it avoid it, anyway?

For instance, alternative businesses are looking at the potential of technology to automate workflows, improve fund accounting and reporting, and streamline due diligence processes. 

And, in the real estate realm, players are realising that, to become a future-fit company, handling data that supports decision making is the base. Data that feeds supporting functions back office topping that listthat, in turn, offer the right insight to drive forward the business.


Back office transformation: a brief story

Think about a decade ago. It’s, back then, when this story started. Based on our experience, we’ve identified four stages that depict the transformation, digital and data-driven, that the back office function in Alternatives and in the overall financial industry, is going through.

Stage 1: The compliance-driven back office

Indeed, regulatory compliance is, at this stage, the focus. Manual work, spreadsheets and device-based or local server storage are common. The back office function is pursuing timely and accurate regulatory compliance, being less concentrated in resource and time optimisation for instance. On top of that, as we have mentioned before, the track of back office’s productivity and performance isn’t that easy. 

On the other hand, collaboration tools aren’t common in the compliance-driven back office so siloed data management is the norm too, which is less efficient.

The compliance-driven back office’s ultimate goal usually put the mind on getting a licence and meeting reporting deadlines and assuming that dealing with the operational burden was an unavoidable trade-off. 

Stage 2: The process-centric back office

Because of increased workload and data volume triggered by a more complex investment and tax landscape and increased regulatory requirements, building an efficient process to remain compliant and cost effective becomes not only key but nearly unavoidable. 

The streamlining of processesthe who does what activity and howand the definition of sound governance for the range of back office activities is, then, the natural next step for any organisation pursuing both operational and cost efficiency and competitiveness.

However, even if the business is well organised, a vast majority of time-consuming activities are still performed manually. Unfortunately, this situation hasn’t fully fallen into oblivion nor are part of the annals of the past. Some businesses still operate this way, at least to a certain extent.

Stage 3: The technology-centric back office

In a business whose back office relies heavily on spreadsheets, limitations are countless. First off, collaboration is fairly limited.  

Because of the lack of or limited controls in terms of data access or accuracy over time, spreadsheets can be risky. Also, some years ago, they rarely included automatic audit tracking functions, although this has changed in the present.

Among other downsides there is the challenge of managing data security or fraud vulnerability. And, on top of that, as we all know, spreadsheets are more susceptible to costly human errors, especially when the data volume only increases over time.

It’s the time for an urgent change, having digital technology as an enabler of efficiency, speed, accuracy and collaboration, and risk management. On the people’s side, they allow the workforce to allocate time to value-added tasks instead of the repetitive ones. 

Technology helps to implement end-to-end solutions at Stage 3. The business, then, if it has put in place the right organisational structure and working flows, can take full advantage of the possibilities and features that technology applications bring. With the help of artificial intelligence (AI) or robotic process automation (RPA), Alternative businesses are improving operational performance, for instance, when drilling down account balances more easily in the consolidation exercise  or when calculating NAV.   

Nevertheless, the cost of technology isn’t affordable to all.  And there is a risk of not having a scalable solution.

At this point, business can be considered as data-driven but not data-centric. Sometimes used interchangeably, they aren’t the same. To Carl Anderson, data scientist and researcher, “data-drivenness is about building tools, abilities, and, most crucially, a culture that acts on data”.

Stage 4. The data-centric back office

When being data-centric, data is the primary asset, it comes first, and information is framed by an organisation-wide data model (including governance) that’s before any technology solution or application, and sticks around even if the tools change. This applies, obviously, to the back office function as well. 

That’s, until now, what organisations around the world that want to go one step further are working on. 

In this context, the back office function uses tools or platforms for people to collaborate around data. It enables back office and the overall business to crowd-source knowledge. 

The accountant of the future, as a consequence, becomes data-centric by default, as well as the professionals dedicated to regulatory compliance, procurement or IT.


Back office, the enabler

What if the back office transformation is an excuse to rethink the finance function as a whole? Yes, that statement is audacious but when one regards back office work—compliance or tax reporting for instance—more than a mere obligation or a burden, new opportunities arrive.


Alexandre Igel, Tax Partner at PwC Luxembourg
Alexandre Igel, Tax Partner at PwC Luxembourg

The accounting profession is evolving; traditional bookkeeping activity tends to disappear and the future will be about managing data efficiently to prepare the right reports and accounting outputs, with the aim to contribute more and to strategic decisions.


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