Make FP&A a key partner in asset management


Technology improves the accuracy and value of forecasting


The effect of just one factor on asset management firms demonstrates the value that financial planning and analysis (FP&A) functions bring to this industry.


Look just at the impact of recent interest rate increases on asset management:

  • Capital for transactions has become much more expensive
  • Bank funding has become more difficult to secure
  • Alternative funding sources have become more prevalent
  • Returns on fixed-rate positions have risen dramatically
  • Investors are rethinking their strategies and allocations

And yet the S&P 500 was up more than 13% for the year through Oct. 11.


A mature FP&A function helps asset management firms prepare for all these nuances associated with interest rates. As a key business partner, FP&A guides management in strategic decisions that plot the right course for the entire organization. Once upon a time, FP&A was mostly backward-looking, considering the organization’s results with predictive ability that was limited by a lack of data and manual analysis with a relatively small scope.


Headshot of John Howell

“You need to recognize the steps you can take to continually improve FP&A’s value to the business.”

John Howell

Grant Thornton Principal, CFO Advisory

Now, leading FP&A teams use data analytics and predictive artificial intelligence to perform deep analysis on historical data, identifying predictive trends that asset management leaders can use to make more effective and profitable strategic decisions. Grant Thornton Principal, CFO Advisory John Howell, said that when the predictive quality of historical data is high and FP&A has a deep understanding of the variances between forecasted and actual results, projections from that data can be extremely useful for management decisions.


“Thinking about the quality and nature of the role FP&A plays within your organization is important,” Howell said.  “You need to recognize the steps you can take to continually improve FP&A’s value to the business.”


The goal is to develop continuous planning capabilities that allow the organization to adjust its strategy whenever it’s necessary. An effective financial planning and budgeting process provides for necessary alterations in funding as assumptions and the environment change.


Instead of being a scorekeeper, FP&A now can serve as a business partner that cooperates with management to develop strategies that move the organization in the right direction. In asset management in the current environment, that means using ever-improving technology to develop predictive models that will guide leadership’s critical decisions.

This graphic shows that as FP&A matures, it makes a transition from a business scorekeeper to a business partner with deep and trusted partnerships with senior leaders throughout the organization.

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M&A and FP&A


Forecasting is a guiding light in integration


As M&A reaches near-historic proportions in asset management, FP&A has a huge role to play in how firms move forward as they integrate. “FP&A and M&A” might look like alphabet soup, but for many firms those letters are the guiding light as they come together with new people, products, and services.


There’s a need to forecast how to best take advantage of the strengths of the combined company and build a strategy that aligns with the new capabilities. Assets need to be allocated accordingly, and many times that process is not easy.


Headshot of Michael Patanella

“The ability to have strong budget forecasts…is critical for looking at both the short-term and long-term objectives of the acquisition that you may just have completed.”

Michael Patanella

National Managing Partner for Asset Management

Merged organizations may differ in their accounting systems, compensation structures, and overhead allocation methods. The potential profitability of new revenue streams and the necessary headcounts to support operations under the new business structure must also be analyzed and updated.


“The ability to have strong budget forecasts and aggregate this type of information is critical for looking at both the short-term and long-term objectives of the acquisition that you may have just completed,” said Grant Thornton National Managing Partner for Asset Management Michael Patanella.


A lot of that work is done before the purchase as firm leaders look at the revenue and cost structure expectations that lead to the deal. But many times, mergers fail to reach their potential because there isn’t sufficient follow-through on the objectives set when the deal was closed.


FP&A is charged with pushing ahead with forecasts and planning that delivers on the promise of the deal.

Meanwhile, in the current environment, many deals in private equity are taking longer to deliver on their promises, as many PE firms are holding on to assets longer in hopes of achieving higher valuations down the road. This may delay the revenue that PE firms (and asset managers who are paid upon the sale of an investment) generate.

“The money is held up,” Patanella said. “Your cash flows aren’t coming in and some of your expenses still may be expanding. You’re counting on your FP&A function to help you forecast those trends and prepare you to manage them.”


Meanwhile, the focus on deriving maximum value from PE deals has led to a strong desire from private equity firm leadership to get better insights into the performance and potential of their portfolio companies. This has strengthened the commitment to mature FP&A at the portfolio company level.

“There’s a demand at the top for more information, and as a result portfolio companies are getting better information to drive their own business outcomes,” Howell said. “The portfolio companies are benefiting from that.”


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Laser focus on interest rates


Understanding a major driver


To provide maximum value to the organization, FP&A must look both forward and backward in relation to interest rates.


A historical view helps asset management firms understand the impact that previous rate changes had on their organizations and how they might adjust their strategies to overcome any shortcomings. The lookahead predicts the changes that might be coming and develops strategies for preparation.


“The rapid pace of change in the interest rate environment over the last 18 months or so is driving great focus on the models and the ability to predict how things are going,” Howell said. “But looking back and getting comfortable with what the drivers and impacts have been as a result of the rapid change in rates is equally important.”


The forecasting of interest rates takes place on multiple levels simultaneously. FP&A helps the organization prepare for long-term interest rate volatility while at the same time predicting individual interest rate decisions that the Federal Reserve might make from month to month.


When Fed decisions are announced, FP&A may develop strategic data about the ramifications of the rate changes. And on a retrospective basis, the FP&A team will examine the effects that changing rates have had on the organization and the environment.


“With the changing results each month, you can more seamlessly update the plan,” Howell said. “They’re getting more data than ever and more opportunities to move with agility than ever.”


Getting the most out of technology


AI and data analytics make an impact


Predictive AI and data analytics are presenting opportunities for asset management firms to make better decisions on a lookback basis and with lookahead analysis.


Grant Thornton’s CFO survey for the third quarter of 2023 showed that more than two-thirds (69%) of finance leaders are using AI for FP&A planning.





Asset management firms have long looked at the performance of past investments compared with how they were forecasted, but AI and data analytics allow them to go deeper and analyze a multitude of factors in all their past decisions.


“Everyone has some that they’ve missed on over the years,” Patanella said. “Nobody’s perfect and looking at why they may have missed on something can provide insight.”


AI also makes it possible to easily run multiple simulations that predict the results of various strategic actions based on multiple factors. An added benefit is the technology’s emotionless output.


Although AI and machine learning platforms can have biases based on the information they learn, they make decisions without emotional influence.


“An investor who backed a technology company that was a big loser is naturally going to be more skeptical of a similar investment because they had that experience,” Patanella said. “The software doesn’t look at it that way.”


Howell cautions that in order to take advantage of this technology, asset management firms need to have good data governance principles in place. Data analytics and predictive AI tools need data that’s relevant, objective, measurable, and complete to provide meaningful analysis.


The methods for driving high data quality may vary based on the size and complexity of the firm and its data. Smaller firms may not require a formal structure such as a data governance committee, but it’s important that someone at the firm provides thoughtful leadership on where data resides, how it’s used, and how it’s maintained.


“If you have distributed sources of data of varying quality, it’s going to be challenging to leverage these tools,” Howell said. “The fundamentals remain, you need clean data and well-controlled data to drive these outcomes.”


When the data and the outcomes are right, FP&A becomes a powerful management tool for asset management firms. An overwhelming majority (83%) of finance leaders responding to Grant Thornton’s CFO survey for the third quarter of this year rated FP&A’s strategic recommendations as useful.


CFOs’ satisfaction with FP&A demonstrates that the ability to look ahead with a greater degree of certainty helps firms deliver better results for their clients, regardless of the environment for interest rates or any other variable in the business environment today.




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