Although the asset management industry has weathered the financial turmoil of 2008-09, organizations can no longer just rely on asset price appreciation as the key driver of profitability. Apart from the traditional reasons (cost arbitrage) for outsourcing operations to third-party vendors, asset managers have newer objectives such as scalability, faster time to market, complying with evolving regulations and meeting newer investor expectations.
Traditionally, back and middle office outsourcing has been popular amongst asset managers. However, front office, marketing and customer services outsourcing has grown. The main activities that have traditionally been outsourced are global custody, securities lending, client servicing, accounting and derivatives trade settlement. However, there is a greater movement towards more middle and front office activities also being outsourced. As a result, services such as derivatives pricing, valuation of liquid assets, tax planning, securities lending, cash management, trade processing and execution, performance attribution analysis, risk, collateral and data management are also key candidates for cost and process optimization.
Some key challenges faced by the industry are:
- Governance related
- Risk assessment and mitigation
- Enhancing investor trust and transparency
- Evolving regulatory landscape
- Leveraging technology to improve efficiency and faster time to market
- Complying with Foreign Account Tax Compliance Act (FATCA) and other information reporting requirements
- Driving business growth amidst increasing competition
Asset Management organizations today are in need of high-end data management solutions from service providers. Faster reporting and greater data availability are crucial elements in creating a competitive advantage and enhancing transparency. The complexity of new financial products, increasingly stringent regulatory controls, evolving customer demands and the costs associated with managing data in-house will continue to drive asset management organizations to enhance data management capabilities.