Much has been said and written about the increasing margin pressure fund managers are faced with. More than ever before asset management CEO’s must ensure that they control their costs in an environment where meeting ever increasing client expectations and regulatory requirements becomes more and more challenging. In this context, BPO (Business Process Outsourcing) has a number of advantages, the first one being the ability to focus management attention and resources on core activities namely asset management, product development and distribution.
Investment fund value chain
Outsourcing has been mainstream in the back-office for a long time covering fund administration, transfer agency, collateral management, clearing and settlement.
The approach now extends to the entire value chain. In addition to using a third party management company, or to be able to purchase risk management support and reporting via specialized providers, fund managers can also use third-party platforms for their PMS (Portfolio Management system) encompassing sophisticated pre-trade compliance checks, order execution, middle-office support (IBOR – Investment Book of Record), audit processes, as well as operational, regulatory and client reports.
Such fully fledged front to back-office platforms now become available not only to the large scale managers but also to the players managing less than EUR 10bn.
Another area for considering business process outsourcing is sales and distribution management with leading CRM tools customized for asset management sales being made available with daily integration of fund in- and outflows at sub-distributor level.
In addition, BPO offerings across the value chain will also gradually develop for illiquid assets such as private equity, private debt, real estate and infrastructure.
By increasingly reverting to BPO solutions, asset managers are effectively pooling their financial resources to address the growing costs of regulation, infrastructure and IT security, thus ensuring their sustainability. By outsourcing these operational activities, fund managers no longer need to worry about the deployment of system versions, or about the consequences of the high turnover among support staff. Likewise, they can adjust their organisational structure in a more flexible manner whilst ensuring scalability.
Choice of service provider
However, the choice of service provider is crucial for successfully implementing an outsourcing strategy.
For successful outsourcing, fund managers, wealth managers, or family offices should look for a partner with high quality standards, who understands their problems, and faces the same regulatory and market developments.
A BPO provider who is an asset and wealth manager himself has a genuine competitive advantage. Asset managers inclined to outsource will indeed prefer a partner who has invested in infrastructure on its own behalf, and has tried and tested these technology solutions before offering them to third parties.
Serge Weyland, CEO Edmond de Rothschild Asset Management (Luxembourg)