July 24, 2023

How Asset Managers utilise outsourcing to preserve capital amidst economic challenges

The asset management industry has witnessed a notable shift towards outsourcing even before the global pandemic. In response to mounting investor and regulatory demands, asset managers have sought external expertise to bolster efficiency. Presently, in the face of challenges like rising inflation, increasing interest rates, and management fee compression, asset managers are increasingly exploring the benefits of outsourcing as a means of safeguarding their margins.

In today's volatile and uncertain macro environment, asset managers recognize that relying solely on asset growth to improve margins is no longer viable. Consequently, they are turning to outsourcing as a way to optimize operational efficiency. One prevailing trend among asset managers is outsourcing middle and back-office functions, including corporate administration, AML/KYC collection, accounting, regulatory compliance, and CFO/COO support.

Reports indicate that 65% of managers view outsourcing as a method to enhance internal productivity and leverage external capabilities, while 58% aim to achieve greater efficiencies. By delegating administrative tasks to specialized third-party providers, asset managers can redirect their focus towards core competencies such as investment analysis, portfolio management, and generating returns for investors. Moreover, they can benefit from the expertise and economies of scale offered by outsourced firms.

The direct benefits of outsourcing in asset management are manifold:

1. Optimising Processes: External partners can handle non-core functions more efficiently and cost-effectively, enabling internal resources to concentrate on essential business activities. Outsourcing fund-specific tasks can also help offset operating costs.

2. Leveraging Specialized Expertise: Third-party providersbring deep experience and industry best practices, resulting in superioroutcomes compared to in-house efforts.

3. Implementing the Latest Technology: Outsourced firmsoften adopt cutting-edge financial technology, enabling asset managers tobenefit without the expenses and time associated with internal implementation. 

4. Enhancing Data Provision: Outsourced fund services businesses invest in robust accounting systems, client portals, and data platforms, facilitating improved data access for both asset managers and investors.

5. Improved Efficiency and Output: Dedicated outsourced staff can enhance an asset manager's control over tasks as they solely concentrate on specific responsibilities.

6. Strengthening Governance: Outsourced providers offer robust governance structures and execute best practices, assisting asset managers in navigating the ever-changing regulatory landscape.

7. Mitigating Talent Challenges: The competitive talent landscape presents challenges in recruiting and retaining skilled employees. Outsourcing can alleviate the strain on recruitment efforts and provide rapid scalability as per the firm's requirements.

Outsourcing has emerged as a strategic manoeuvre for asset managers to safeguard their margins and enhance efficiency amidst economic challenges. By entrusting non-core tasks to external partners who provide specialized expertise and technology, asset managers can concentrate on their core strengths and confidently navigate the shifting financial landscape.

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