The University Record, February 8, 1993

Time invested by Michigan Investment Team pays off

By Jane R. Elgass

In 1986, the University had three systems for tracking investments that were maintained independently. All involved manual entry of data from the same originating source. Five-way reconciliations had to be done each month, making it difficult to fulfill reporting requirements on a timely basis.

The challenge: Find a better way to manage the information efficiently and without redundancy.

Impossible? Not for the seven members of the “Michigan Investment Team,” representing the Investment Office, the Information Technology Division and Financial Operations.

The group has worked for the past two years to find a system to meet their needs. Today there is a single integrated system serving the varied needs of multiple users. Now, some reports can be created with a few quick keystrokes.

And while the group was created before M-Quality became a byword at the University, they did follow the seven-step process on which M-Quality activities are based. Group members say their experience shows that M-Quality isn’t as revolutionary as some may think and that there are many things done in the M-Quality fashion that just have a different look.

The group reviewed its work and results recently at a monthly seminar for managers and administrators in units that report to Farris W. Womack, vice president and chief financial officer.

Linda Berlin, an administrative assistant in the Investment Office, noted that the old system was “inefficient and redundant.” It used a 25-year-old mainframe system, reports could only be done monthly, the system’s archaic “language” had been frequently patched, and there was no interface with data from other units.

Problems with the system multiplied between 1986 and 1991 because of growth in investments. In 1986 the University had $800 million in investments. That increased to $1.4 billion in 1991, and the complexity of the funds in which the investments were placed also increased. In fiscal 1991–92, the total was $1.7 billion.

In 1986 the University had one manager handling its investments, all of them domestic. By 1991 there were eight managers and investments included domestic, international and global securities. Transactions had increased from 2,000 to 8,000 per year.

Chip Simper, at the time assistant manager of invested, auxiliary and plant funds, Financial Operations, said the University was “at risk of having the capabilities of the system constrain its investment program.”

“Our goal was to find one system that would offer basic accounting information, support for management activities and direct access to the information for senior management. We also wanted to eliminate key-punching by having data feed directly from our custodian bank that holds the securities and moves them when trades are made.”

Simper said the group ruled out in-house development of a system. “We knew there were sophisticated systems out there and didn’t want to reinvent the wheel. Outside systems, however, were costly—$200,000 to $500,000 plus annual maintenance fees—and no matter how sophisticated, the quality of the output was limited by the input of the custodian bank.”

At that point, said Elizabeth S. Hokada, associate investment officer, the team went back to management—Norman G. Herbert and Robert W. Moenart—and explained its findings. “Norm Herbert asked the key questions,” Hokada said: “ ‘Do we really need our own system. Could the custodian provide the system?’ ”

Herbert, treasurer and investment officer, and Moenart, controller and director of financial operations, decided to have the team explore the possibility of having the custodian provide the system, and Moenart “gave the team free rein” to tackle the new charge, Hokada said. “This was critical to the success of the project.”

The National Bank of Detroit was the long-time custodian of the University’s funds and, according to Hokada, “not providing the information we needed to eliminate our own system. Meeting our needs would require big changes.

“The team essentially said, ‘the bank must make an investment in change or we will have to change custodians,’” Hokada explained. “There were many months of meetings and the bank knew our requirements. We finally did change custodians. The old relationship was an important one and the change needed to be handled carefully.”

Robert F. Wilke, systems development coordinator, Consulting Support Services, Information Technology Division, was the “techie” of the group. He defined the technical requirements necessary to support the type of system the team sought and helped define its request for proposals. “We really followed a reasonable process,” Wilke explained. “It allowed us to move quite rapidly.”

The team looked at areas beyond technical support in reviewing possible new custodians. These included the custodian’s commitment to meet the University’s needs, its financial status and competence, and its approach to total quality management—what programs it had.

Charles M. Hawkins said the team also took into account the University’s commitment to the Michigan Mandate. “We wanted to assure ourselves that the companies we visited were keeping up with change and would be around in the future. That was important for the long-term success of the relationship,” said Hawkins, financial manger of invested, auxiliary and plant fund operations, Financial Operations.

With the guidance of the investment team, the University selected The Boston Company, a Boston, Mass., bank, as the new custodian of its funds. Its representative, Bill Pryor, now has joined the team as an eighth member as the group considers changes that might be required in the future.

In closing remarks, Womack noted that “in M-Quality, the role of manager becomes more the role of coach. We became cheerleaders for the team. They gave us feedback that allowed us to manage by fact.

“The difficult task of changing the custodian, with which we had a long-term relationship, was not an easy assignment. You made this possible by the work you did. We did not damage a relationship we wanted to preserve. You gave us facts to work with.”