The outlook for fund operations in 2012

Posted by Geoff Hodge, Milestone Group on  Feb 29, 2012

The coming year looks set to be dominated once again by the dual themes of transparency and increasing urgency for breakthroughs in operational efficiency.  Continued regulatory development in all fund markets is inevitable. There will be a strong focus on investor protection and firms will be called upon to prove that their processes and strategies are robust to that end. As a natural part of this, the management of outsourced relationships will be pushed into the spotlight to ensure preservation of operational control and accountability. We are also expecting a renewed focus on innovation as a way of simultaneously addressing pressure for efficiency while absorbing increased product complexity, and evolving operating models and regulatory change.

2012 will also see firms questioning the service impacts and long term value of the current trend of  offshoring aspects of fund administration to achieve labour market arbitrage. Labour market arbitrage has historically proven to deliver only a transient benefit for complex financial services operations, and the highly competitive nature of the market, in the context of the broader economic climate, has driven home the importance of service quality, flexibility and transparency for client retention.

Against this backdrop, technology will play a much greater role in globalising operating models. Not only does old-style siloed functionality not deliver the efficiencies firms need in the face of unrelenting margin pressure, but neither does it give firms the global picture they require, or the ability to demonstrate transparency. This will drive a shift in the way firms use their technology, turning away from the disparate systems of the past, to platforms through which they can bring together multiple business functions and provide cross-functional transparency for clients and stakeholders.

Expect too, greater scrutiny of the true effectiveness of outsourced decisions. With outsourcing arrangements prevalent across the fund management value chain, asset managers, asset owners and administrators are struggling to varying degrees with delivering the level of oversight demanded by regulators. The traditional response of replicating or ‘shadowing’ outsourced functions has become uneconomic for some, and is threatening the business case of the original outsourcing decision. As demands for operational accuracy and efficiency continue to increase, financial institutions must start to look for ways to minimise costs, validate results and monitor service levels associated with their outsourced relationships without that degree of replication.

In this environment, where cost pressures are starting to bite and the burden of regulatory compliance continues to build, technology that can streamline global operations and uncover opportunities for previously unforseen efficiencies will be key to maintaining competitive edge.

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