Digitalisation and outsourcing: a movement accelerated by the crisis
It was extremely difficult to organise work and IT systems during the first half of 2020. The resilience of the asset-management value chain during lockdown proves the industry's need for increased digitalisation, automated processes and outsourcing.
The asset-management industry has demonstrated its resilience to the many challenges that arose during the first half of 2020. Between widespread remote working, the explosion in volumes traded on the markets and huge subscription/redemption movements on funds, methods for organising work and IT systems were put to the test. In a survey carried out this summer by Societe Generale Securities Services, the vast majority of stakeholders said they were satisfied with the quality of service offered by their providers and with their resilience during the crisis.
Current studies picking up speed
There is no doubt that this crisis has accelerated studies currently under way on the transformation of organisations and their business models. The post-crisis world is already here, and asset managers as well as institutional investors are particularly expressing their desire to continue their transformation and diversification. In an environment of strong competition and weak performance, the search for efficiency is paramount and encourages them to pursue their digitalisation and outsourcing initiatives for certain non-strategic activities. Our survey indicates that based on recent experience, mid-cap companies are increasing their degree of specialisation, focusing on activities with high added value, and are turning to strong partners capable of supporting them in their transformation.
Therefore, they are seeking to delegate certain functions to establishments that offer them critical mass, reliable systems, economies of scale, and proven business continuity plans that are based on market-leading technological infrastructure. Within many organisations, studies focus on the choice between investing to bring existing systems up to date and outsourcing services. The subject of the trading desk is a good illustration of this issue: many asset managers still believe that order trading is part of the DNA of a management company. Yet the asset-management and order-execution businesses are very different, especially when the vast majority of volumes traded on regulated markets come from market making and algorithmic trading. The outsourcing of the trading activity enables managers to call on the expertise of trading professionals on the best execution venues and using the most efficient systems.
Combining our offerings with those of our partners makes us more efficient
“Do everything yourself” is a declining trend and that also goes for institutional investors, asset-management companies and for us as a service provider. The demand for excellence, comprehensive offerings and constant innovation is driving our establishments to seek optimal solutions for our clients. The diversity of needs expressed by our clients encourages us to forge partnerships so that we can offer new services more effectively. Combining our offerings with those of our partners makes these joint solutions far more comprehensive and resilient. Two examples are MFEX, a specialist in fund-trading services and fee-sharing agreements, and Simcorp, via our CrossWise offering, on front-to-back solutions (portfolio management, execution desk and middle office), with which we have partnered in order to offer our clients an even more comprehensive range of services. We are also collaborating with fintech firms, which can offer us a specialised service on very specific segments along the value chain, enhancing our digital service offering even further. This is the case for Addventa, for example, which automates the production of management commentaries in natural language, and Epsor, custody account keeper and distributor of employee-savings solutions, which enables us to extend our range of services to new players.
The times we have been living through in the last months have fundamentally changed the way we organise our work. We need to learn from these experiences and continue to digitise, automate our processes, and adapt to new ways of interacting with our clients. The all-digital world is driving us to provide our customers with all their data centrally, in real time and in the most varied forms: a single cross-business portal, API libraries, etc. We must also all become more efficient in our client-supplier relationships by making widespread use of new digital technologies. For example, we are now commonly using electronic signatures for all types of contracts. Internally, artificial-intelligence tools mean that we can accomplish time-consuming tasks more quickly by automating reading and validation for KYC documents, contracts and fund prospectuses. Likewise, the widespread use of chatbots applied to tools usually used for communication between financial institutions – such as Symphony – mean that we can optimise and improve the digital experience for our clients.
These initiatives are also dictated by a strong commitment to offering solutions compatible with the changing practices of new generations. For example, we have rolled out a mobile alert service to inform managers about subscriptions and redemptions for large amounts in their funds. This type of service is intended to give our clients more control by allowing them to personalise their tools and receive only the information they need for their daily professional life.
The particular crisis that we are going through is forcing us to adapt our service offerings to the new requests of our clients and their financial reality. The necessary digitalisation of these solutions is an accelerator for the transformation of our industry and a sign of its resilience.
Interview of Gautier Ripert, Chief Operating Officer of Carmignac, a leading European asset management company:
In your opinion, what are today the expectations of a management company in terms of outsourcing vis-à-vis its delegate?
For a fund management company, an outsourcing decision usually meets two objectives: improving operational efficiency and reducing costs. However, today, using an asset servicer should make it possible to go a step further, to benefit from new services with a view to technological disruption. Fifteen years ago, the first wave of outsourcing consisted in outsourcing its middle office as it is, including its complexity. More recently, the approach for the asset manager has evolved to adapt to the more standardized, but also more robust and efficient offers of asset servicers and for the latter to move up the value chain to offer new services, like automation of certain processes for instance. This enhancement of services is all the more virtuous if the asset servicer partners up with a technological platform (such as a tool for keeping positions and placing orders for the Front Office), in order to truly become the natural extension of the fund manager, thus eliminating the risks inherent in interrupted workloads.
What are the new functions that are relevant to outsource?
I believe that developing services around data contains interesting perspectives. The asset servicer has a lot of data coming from the fund manager, on the inventory of his portfolios, his transactions, and must be able to offer the fund manager new services, in terms of trading (front running, market abuse), compliance (KYC, etc.), liquidity risk management (with indicators on the assets and liabilities of funds), production of more personalised reports, etc.
How should the organisational methods of fund management companies change, in order to support outsourcing?
Controlling outsourcing is key. We must remain vigilant, because we are outsourcing activities for which we remain responsible. The events of the first half of 2020 demonstrated the strength of the outsourced model in place at Carmignac. But it is essential to audit the robustness of the business continuity plans, which must be well documented, because we have seen that they are not only theoretical, since some have had to be activated. However, it would be counterproductive to reproduce the controls already carried out by the asset servicer, so in order to keep a lean structure, you have to interact with the asset servicer to receive the data and the results of its controls.