How Investment Firms Can Prepare Their Operations for a Recession

The next economic downturn is not a matter of if, but when, and how severe? Have you thought about how to prepare your operations for a recession?

Good Economic Times for the US

  • The economy is currently experiencing its second longest economic expansion in history.
  • Consumer confidence has risen to its highest level in 18 years.
  • Unemployment is at 3.9%, the lowest level since 1969.
  • The Dow Jones, Nasdaq, and S&P 500 indexes have been at or near-record highs in 2018.

But Will the Good Times Come to an End?

  • Concerns about an overvalued stock market
  • Rising levels of government and consumer debt
  • Declining home sales
  • An intensifying trade war between the United States and China

It's All About the Bottom Line; Cash Flow Is King

While it's up to the CFO to figure out your firm's overall financial game plan, and while it's up to the Chief Investment Officer to figure out the most revenue-generating investments, COOs and operations directors still play an important role as far as bottom lines and revenue are concerned.

Operations by its nature is not a revenue-generating department like investments is.

But an efficient operations with low expenditures and quickly produced high-quality reports put the investment team in a better position to do their job (earn money), and it satisfies the financial objectives for the organization.

Such measures will be of utmost importance should the next economic recession come.

How to Prepare Your Operations for a Recession

Avoid Purchases with Unknown ROIs

Do not purchase new technology or portfolio accounting software if you're not sure:

  1. how to use it
  2. how often you'll use it
  3. how it will produce cost or process efficiencies for your long-term operations

If you know the purchase can result in greater efficiency, but you're not sure how to use it, make sure you'll have the means to learn or you leverage a third party to handle the technology and software for you.

Leverage RPA

Robotics process automation (RPA) can be used for routine work like report generation, and RPA can speed up processing and completion times while ensuring greater accuracy in the data.

If your internal staff is unable to get this technology up and running, a third party provider can help.

Cross-Train Operational Staff

Get your middle- and back-office staff to be as versatile as possible. Have them learning each other's work so that, in the unfortunate situation of layoffs, your remaining operations team has the know-how to perform any task.

Excluding fears of a recession, cross-training your employees can also mitigate the risk in employee turnover.

Document Operational Procedures

Make sure tasks like daily reconciliation reporting have documentation. If there is an existing document, review and update it. If there isn't one, get started on it now.

Documentation sets a standard for executing a task, and it's a consistent, foolproof way to ensure high-quality and accurate reports. Such reports help the trading and investment teams do their jobs better (bringing in money), and clients can trust in your firm's reporting.

Documentation is also important for when an assignment lead is out sick, on vacation, or leaves the firm. In their absence, another team member can follow the document and perform the task with the same precision and accuracy by following a clear set of instructions.

Having things documented is a best practice, fears of a recession or not. But during a downturn when budgets are tight, bad or no documentation can result in poor and inefficient operational performance, which can be costly.

Outsource the Middle- and Back-Office

Middle- and back-office outsourcing is a possible way to reduce costs.

Working with an investment management operations outsourcing company not only could help lower costs, but it can help increase operational efficiency, achieve greater scalability, and reduce risk associated with hiring and turnover.

These vendors should be able to run daily reports, handle performance and NAV calculations, billing, cost basis,  IT needs, etc.

Some outsourcing companies will specialize in running your portfolio accounting system or they are system agnostic, meaning they have resources and talent to work with any system you have.


Given fears of another recession and the subsequent financial strain it can put on investment management firms, COOs and operations directors should consider all steps to reduce their costs while maintaining high levels of efficiency.

Cost reduction and increased efficiency measures are not impossible, considering the options investment firms have: avoid expenditures with unknown ROI, leverage automation, cross-train staff, document procedures, or outsource operations.

If a recession hits tomorrow, a year, or years from now, cutting costs and increasing efficiency should be the goal, regardless of the economic climate.

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