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The investment management industry has come under serious pressure in the wake of the credit crisis.
Investors and regulators have become more demanding in terms of risk and reward, product suitability and transparency regarding the financial, operational and legal risks of investment products. As a result, clients have demanded lower fees or, in many cases, flocked to low fee and low margin products where risks are thought to be more transparent.
At the same time as clients have become more demanding, fund managers are finding the costs to comply with regulatory requirements are steadily rising. The result is that profitability of investment management activities is squeezed and managers are having to examine how they might rebuild their margins and enhance battered returns.
This document contains the results of a survey of asset managers conducted between September and November 2010 by RBC Dexia and Accenture. To ensure the quality of the results, we polled online and through face to face interviews senior managers of over 80 companies from the global fund management industry in the United States, Europe, Australia and the Middle East. Our interviews were wide ranging, covering their expectations on generating revenues, accessing the latest technology and lessons they could share on why services were outsourced and what the key success factors in achieving top performance were.
Although no single solution exists which solves all problems for all companies, our survey clearly suggests that costs can be reduced by up to 20% in the short term, and more in the longer term, through outsourcing. However, achieving these savings requires careful planning and a thorough understanding of what services are most effectively kept in-house and which can be better performed by other service providers.
Recent turmoil in global financial markets has deeply affected both the reputation and the profitability of the investment management industry. Falling market prices and a general move away from high margin products to highly liquid, low fee products have driven down revenues.
Target returns on equities are generally falling with 50% of fund manager respondents saying that targets had been revised and 59% targeting a figure below 15%.
One of the fund managers’ top priorities remains performance. Outsourcing and offshoring allow them to concentrate on their core competencies and to access the latest technology in pursuing performance.
When managed appropriately, outsourcing non-core activities allows fund managers to structurally improve their profitability by aligning cost and revenue structures, and also to limit the operational risk and financial impact of future investments in people, processes and systems in non-core areas.
While cost is a crucial element in choosing an outsourcing provider, a host of other criteria also come into play, including expertise, flexibility and reputation.
Fund managers are increasingly deciding to outsource process-driven services to low-cost locations, while more sophisticated services such as fund accounting and custody are better suited for higher-cost locations closer to home.
Participants indicated cost reductions up to 25% could be achieved through outsourcing programmes, however, the full scale of savings in such cases has often taken longer to achieve than initially anticipated.
February 7, 2011
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