TAKING AN INTEGRATED APPROACH TO COLLATERAL MANAGEMENT AND POST-TRADE PROCESSING

PGGM is a cooperative Dutch pension fund service provider. Managing assets worth EUR 259 billion and administrating pensions for 4.4 million participants, it is one of the largest pension fund service providers in Europe. Founded in 1969 as a pension fund, it now offers a range of services to its institutional clients, including asset management, pension fund management, policy advice and management support.

PGGM has been a client of SimCorp Dimension since 2006. Initially, the firm chose to deploy SimCorp Dimension as the backbone of its IT architecture to automate manual processes and to underpin its front to back-office operations with an Investment Book of Record (IBOR) as a centralized, enterprise-wide source of data.

A strong, collaborative partnership has developed over the years, with PGGM choosing to extend further its use of the SimCorp Dimension platform to additional areas of the business, including Asset Manager, Compliance Manager and Data Warehouse, utilizing SimCorp’s solutions and services to streamline business processes and scale for growth.

Optimizing operations and processes to meet business outcomes

PGGM focuses on delivering value-added investment services to its clients - as cost-efficiently and effectively as possible. To be able to do so, the firm continually reviews its technology, operational processes, future business requirements and any new (expected) incoming regulatory obligations which might impact PGGM across its entire value chain.

During this regular review process, an area of complexity within PGGM’s business which was identified for overhaul was post-trade processing and collateral management.

Traditionally across the buy-side, the function has been handled through a mix of manual spreadsheet and email workflow, with a strong focus of in-house solutions such as Excel. Consequently, it is an area which requires manual processing of unstructured data for OTC and repo margin calls contained in email with attached PDFs. Further, aggregation and reconciliation of data and information is necessary between internal teams, solutions and external counterparties.

However, incoming regulatory requirements such as SFTR and Uncleared Margin Rules, and the ensuing reporting requirements posed new short-term and long-term challenges, which PGGM needed to address.

Establishing a blueprint for change

Having identified post-trade processing and collateral management as areas which could be optimized, PGGM worked with a third-party consultancy firm to gather requirements.

They undertook an internal analysis of where operational friction could be reduced, and manual intervention could be minimized. Alongside this, PGGM also considered what technology was available within the market, which could be deployed to create an agile operating model to handle increasingly complex instruments while meeting future regulatory obligations.

PGGM identified several necessary changes needed to simplify its collateral management and post-trade processing operations. Firstly, the pension fund service provider looked to retire its current spreadsheet and email-based workflow, including manually exchanging information internally and with external counterparties. Secondly, it identified how to minimize manual intervention within processes, including the importing and exporting of data, such as trades in and out of SimCorp Dimension.

An additional requirement was to look further ahead, and encompass the processing of cleared products, including interest rate swaps and cleared repos, into requirements and planning.

The proposed solution would look to automate and secure post-trade and collateral management processes - and tightly integrate with all activities that generate collateral obligations or hold eligible collateral. Crucially, PGGM would also be able to connect to a wide range of platforms and infrastructures in the marketplace.

Taking this approach would not only increase efficiency, and reduce cost, but critically, it would remove the need for data aggregation between different solutions and allow for an audit trail and appropriate compliance tooling to minimize operational risk.

Choosing an integrated approach over a component-based architecture

PGGM initiated a comprehensive review of solutions available within the market to meet its business requirements. The selection process included not only incumbent providers, but also external vendors.

Following the review, PGGM decided to pursue an integrated approach over a component-based, best of breed strategy. With SimCorp Dimension already in place as PGGM’s administrative hub through its IBOR, all positions of PGGM relevant to collateral management were already captured within SimCorp Dimension, providing a solid foundation to start building from.

Further, SimCorp’s modular approach and continuous investment across its entire solution set meant that a market-leading solution and functionality was available for PGGM to solve its immediate requirements. 

Additionally, SimCorp Dimension’s open architecture and the ability to access all relevant data via SimCorp’s integrated platform, as well as the strong business expertise of the teams, were crucial for the decision.

Where specialism was necessary for PGGM’s business, they would be able to integrate SimCorp Dimension with a select number of market-leading platforms, for example, AcadiaSoft’s MarginSphere® to optimize operational collateral processes.

Collaboration and close partnership key to success

Following PGGM’s decision to partner with SimCorp on the initiative, a project team was formed consisting of subject matter experts from both organizations.

A comprehensive gap analysis was conducted in collaboration with both SimCorp and PGGM at the launch of the collateral management program to ensure the solution satisfied both immediate business requirements, but also, provided the flexibility for PGGM to meet future challenges.

During all project phases, both teams worked in an agile mode to customize the solution to PGGM’s business needs. Several key areas were identified to develop the solution further to meet PGGM’s specific requirements around triparty and clearing.

Specifically, SimCorp worked with PGGM to deliver customization for the coverage of cleared repos, a vital business line at PGGM. As a result, the firm is now the first pension fund service provider globally to centrally clear repos at EUREX. Further phases will focus on adherence to initial margin calculations and workflows associated to enable efficient compliance with UMR regulation.

The whole collateral management program was delivered on time and budget, especially notable considering the final phases of the implementation were delivered remotely due to Covid-19. This can be directly attributed to the expertise of the teams who took special care to keep disruption to a minimum.

Continuing the journey – What comes next?

The next area in focus for PGGM is the upcoming Uncleared Margin Rules (UMR) requirement. The forthcoming deadline of September 2021 for category five clients will require PGGM to not only exchange variation margin between counterparties, but also to calculate and exchange initial margin which could potentially increase the number of daily bilateral margin calls.

While the regulatory environment will continue to present further challenges for the buy-side community, PGGM’s modernization of its post-trade processing and collateral management operations will provide the necessary agility to handle new operational challenges.

Quick facts

Headquarters:  
Zeist, Netherlands

Total assets: 
EUR 259 billion

Website:
www.pggm.nl

About PGGM

PGGM is a cooperative Dutch pension fund service provider. Institutional clients are offered: asset management, pension fund management, policy advice and management support. On December 31, 2020 PGGM had EUR 268 billion in assets under management and was administrating pensions of 4.4 million participants. Around 765,000 workers in the Dutch healthcare are connected to PGGM&CO, our members organization. Either alone or together with strategic partners, PGGM develops future solutions by linking together pension, care, housing and work.