The new outsourcing challenges for asset managers
In recent years, asset managers have been facing a complex environment: substantial competition, lower interest rates and increasing regulatory pressure. They are therefore, as already mentioned in the Taking the Long View study published by SGSS in June 2018, actively looking for solutions enabling them to optimise their cost base and improve their operating model in order to remain competitive.
The second outsourcing phase….
Within a highly competitive environment, asset managers stand out from their peers primarily through the pertinence of their strategy, performance of their asset management and efficiency of their sales force, leading to good fund distribution, but not necessarily through the processing of their operations.
Fifteen years ago, mid-size investment companies had already initiated an outsourcing trend for part of their back-office operations. What was new back then has fairly rapidly become the market norm, with mature “industrial” offers supplied by Securities Services providers: securities custody, fund administration, trustee services, etc.
SGSS wants to go further down the outsourcing road. This latest phase will now make it possible to move up the value chain towards middle-office (MO) activities, portfolio management services (PMS), and even routing and execution.
A response to new requirements
A number of reasons can be given to justify extending this offering towards the top of the value chain:
- even more than before, in order to remain competitive, asset managers need to focus on their core business and, as far as possible, offload all tasks that can be entrusted to non-competing third parties.
- IT systems cost more and more. Regular investments are required, and only the largest players can afford to do this. Indeed, systems need frequent upgrades to newer versions, and there are numerous technological innovations to cope with too (Robot, Big Data, Artificial Intelligence, etc.) One must notably be capable of communicating with the various asset management ecosystem players (data providers, retrocession managers, fintechs, etc.) via new connectivity (such as API).
- regulatory reporting requirements are increasing, and also require substantial investments. EMIR, AIFM, Solvency 2, etc. reporting has shown the regulator’s growing demands in this respect.
- the supplying of increasingly targeted data on their operations, as well as new features (such as alerts and performance attribution measurement), sought by asset management companies’ clients, are becoming a major commercial issue, although this means being able to control a considerable volume of information inaccessible to many asset managers.
- proof of performance and process reliability vis-à-vis clients, through audits or due diligence.
A comprehensive and modular offer
To meet its clients’ expectations, SGSS proposes its Crosswise solution. This modular and integrated offer covers most elements of an asset management company’s value chain: back office, middle office, PMS and trading.
Crosswise lets asset managers pool the increasingly high cost of IT infrastructures and IT security, projects relating to regulatory changes and requirements as well as the expertise associated with the latter, whilst sustaining them. Integrated in all standard back-office services (custody, registrar, fund administration), it is a consistent continuum covering the entire operational chain provided by a totally independent trusted third party.