Since the recession of 2008–2009, official institutions including sovereign wealth funds (SWFs), central banks and government pension funds have faced an environment of low interest rates and currency fluctuations; compelling many of them to recalibrate their strategies in order to meet long-term obligations.
But they face multiple restrictions.
They are increasingly demanding high-quality investment managers, and the underlying systems and flexible processes needed to help them identify opportunities, manage risk exposure and take corrective action*.
However, as public sector entities, many of these institutions are often subject to certain constraints, meaning they may find it difficult to compete with private sector funds in attracting and retaining top-quality staff.
Some have legacy IT infrastructure, and budget restrictions that can curb their ability to quickly invest in the latest technologies; while others are taking time to change management structures to reflect market conditions.
However ‘nimble’ institutions are challenging this status quo.
According to our research*, there is a leading group of official institutions more responsive to the changing environment.
Those categorised as Nimble, or seen as ‘leaders’ amongst their peers are investing in their IT capabilities and developing sophisticated analytical applications to facilitate their digital and IT capabilities.*
They can be large or small, and are located across all regions. But one thing they have in common is their tendency to outperform their peers in areas such as, investment risk management, investment in technology, information management and upgrading skills in key areas. The actions and behaviours of these companies can provide guidance to other institutions focused on ramping up their capabilities.
For example, based on our observations effective technology is critical in helping official institutions achieve their objectives. Yet many struggle with ineffective systems. Integrating systems remains a common problem — a challenge mentioned by 71 percent of official institutions. EMEA institutions report greater challenges than those in APAC. Older institutions may struggle with outdated and incompatible systems. In some developing countries, access to infrastructure and resources is more difficult.*
Others are prioritising employment of specialist staff and improved training to develop in-house technology capabilities.*
What next?
The volatile economic environment offers both threats and opportunities for official institutions. Our analysis indicates that all official institution types — central banks, SWFs and government pension funds — are, to varying extents, embarking on these changes across all regions.
It is important to develop sophisticated capabilities in risk management and organizational agility to respond quickly to opportunities and threats when they arise. Specifically, the most Nimble institutions do four things right.
– Prioritise the development of organisational agility: focusing on those areas that may be the most difficult, such as creating adaptable business processes.
– Move risk management forward: Continuing to look at ways to get better at understanding and managing risk, through investing in people and systems, and by reworking processes.
– Invest in information capabilities: Addressing existing challenges in data sharing and integrating legacy systems, and investing in technology to enhance operations while also managing the risks.
– Develop the right talent: Building strong teams in areas that are key to future success – investment, data management and analytics, technology and governance.
The attitudes and behaviour of Nimble institutions demonstrate that, in a world where volatility, ambiguity and uncertainty will almost certainly persist, improvement and learning must be continual and constant. Institutions will need to build these adaptive skills into their organisational DNA to help support long-term success.
Rod Ringrow is head of central bank and sovereign wealth fund sector EMEA at State Street
* Source: State Street and Oxford Economics, “Official Institutions: Transforming to Meet the Needs of a New World”, December 2015
