Rebooting the global asset management industry

Rebooting the global asset management industry 37 Second, the ones outsourced at the lowest scale – like FX management, data management, and vendor management – are expected to see further outsourcing, with the regular upgrading of the technology stack at the service provider end. It is expected to deliver solutions that aggregate data from in-house sources, third parties and their service providers to generate valuable intelligence and actionable insights. Third, this chain reaction is likely to turn some service providers into analytics powerhouses in a changing ecosystem. Indeed, some small asset managers in our survey are already using service providers that offer holistic asset servicing solutions across front, middle and back office functions. Such straight-through processing via an automated electronic workflow that processes asset transactions, from initiation to completion, without manual input, are reducing costs and human error. Fourth, back office outsourcing is expected to experience product widening and deepening. Widening, as ever more asset managers are expected to outsource their non-core activities and service providers respond with new data offerings. Deepening, as service providers continue to improve their current offerings under emerging strategic alliances. Finally, as asset managers seek new sources of organic growth – via diversification into private markets or emerging markets or thematic funds or more regulated vehicles like UCITS funds – talent shortages have fueled staff costs and business overheads. Outsourcing continues to be seen as a cost-effective means of organic growth. The idea of a stand-alone vertically integrated asset manager is history. Emerging in its place is an integrated ecosystem that seeks to offer better value for money and acts as a brake on the operational bloat that often comes with rapid business growth. This chain reaction is likely to turn some service providers into analytics powerhouses in a changing ecosystem. Insights Advancing towards outsourcing 3.0 as a growth strategy Since the beginning of this century, we started outsourcing to specialist external service providers in three successive waves. The first focused on back office activities that are amenable to economies of scale. These included custody, trade settlement, transfer agency and fund accounting. Our aim was to start moving towards a variable cost business model that converts fixed costs into variable ones by outsourcing non- core activities to specialist service providers and enjoys scale benefits at one remove. The second wave began at the start of the last decade, when passive funds took off in earnest and intensified margin pressures for active managers like us. So, we externalized middle office activities like IT support and trade support . The third and current wave is now advancing gradually into the front office, affecting core activities in our investment engine – such as research, trading, and portfolio management . The arrival of AI and GenAI has forced us to have a root-and-branch look at our entire value chain and focus the top leaders’ attention on where they can add most value in the current winner-takes-all investment landscape. We can no longer rely on markets to bail us out in this low real return era as central banks have taken away the proverbial punch bowl. Interest rates are likely to remain higher for longer as government deficits continue to scale fresh heights in the key economies. The old ways of doing things are no longer viable. We need a lean and agile operating model that works in good times and bad alike. When facts change, you have to adapt to survive. A French asset manager “Investors want more high-quality data, at their fingertips, delivered faster and covering all aspects of their portfolios.” “Our variable cost model has delivered 30% growth in AuM in this decade at no extra staff overheads.” Interview Quotes