Outsourcing - Value, Efficiency and Risk 

Just as the 2001 downturn led to a surge in investment management operations outsourcing, the 2008-2009 downturn is likely to have a far-reaching effect on how IT and operations budgets are allocated. The catalyst for outsourcing comes from a host of strategic, financial, regulatory, operational and technological changes. Competition for assets and greater attention to investment performance is driving asset managers to re-focus on their core competencies of product development and investment performance, and to consider whether they have adequate capital resource support. For the asset manager, maintaining or increasing profitability in turbulent markets has encouraged better matching of costs to revenues with a business model that migrates from a largely fixed cost to a more variable cost structure.

For asset managers with more complex products, industry best-of-breed technology is crucial. Simultaneously, the cost of acquiring and implementing products to support multiple asset classes, and for finding experienced, competent staff to develop processes and ensure regulatory compliance keeps rising.

While many investment managers have throttled back their IT investment during the reign of uncertainty of the past 12-18 months, the need for new or updated applications and systems development requirements looms large. With internal and external regulatory requirements expanding, firms are working to address internal workflow, risk management / measurement capabilities and OTC derivative processing. John Alshefski, Senior Vice President and Managing Director for SEI's Investment Manager Services division, commented “Institutions aren’t waiting for regulation. They are driving the requirements of what managers need to provide and there is more emphasis being placed on a manager's infrastructure, avoiding headline risk and staying ahead of increased regulation.” These types of internal initiatives can fall flat without sound data management architecture in place. Specifically, InvestTech has found that asset managers without a solid reference data foundation, or firms that cannot aggregate accurate, consistent data (virtually or physically), in addition to having operational or technical challenges, are seen as more likely outsource candidates.

The Outsource Continuum in Figure 1 depicts a number of outsourcing relationship options asset managers can select and the roles and responsibilities associated with each offering. InvestTech has conducted a number of reviews of the leading North American and European outsource service providers. These in-depth evaluations reviewed the depth and breadth of their offering, the applications, processes and industry utilities employed, a profile of their new client conversion and client support capabilities and how each is positioned on the outsourcing continuum. The reviews have provided insight into how each provider services their clients, and the relative functional and technical strengths and weaknesses of each provider. These insights are valuable to our clients that are considering outsourcing all or a part of their internal operations. To continue, click here.

Recent Project Highlight

Outsourcing Service Supplier

A $30B international equity manager that found their investment operations staff growing at a faster rate than their AUM and revenues engaged InvestTech to identify a list of potential outsource service suppliers to provide post-trade execution services.  The primary driver behind outsourcing was the settlement complexity of the foreign equity component of their portfolios. This led to inadequate corporate action data, the need to multi-source reference data and significant reconciliation and cash management issues. Click for the InvestTech Solution..

InvestTech's Director of Eagle Consulting

Mr. Coffin joined InvestTech in 2001, bringing a varied and extensive background in investment accounting, performance measurement and back office workflow design responsibilities.  His prior experience working as the in-house project lead on several large scale portfolio accounting replacement projects brings a unique, client-first perspective that is common across all InvestTech project engagements.  "I feel that every client deserves a balanced, yet challenging, advocate for their projects.  These are more than just technology initiatives.  There is also major change management that warrants the eye of someone who has experienced the process from the client's side of the fence, but yet can manage expectations appropriately", states Mr. Coffin. Mr. Coffin has developed operational workflow procedures and control processes contributing to efficiencies in transaction processing and staff productivity for many of InvestTech's largest clients.  He has in-depth experience with operations and investment accounting procedures for a broad range of investment securities and has successfully managed numerous large, complex investment accounting, data warehousing and performance measurement systems related projects. Contact Kevin at coffin@investtechsystems.com.

The GIPS Executive Committee (EC), the governing body for the Global Investment Performance Standards (GIPS^®), is seeking industry comments on the GIPS 2010 Exposure Draft. The public comment period will last until July 1, 2009. All comments received, unless requested to be kept confidential, will be posted on the GIPS website.

Links

• GIPS Standards
  • Effective 1/1/2010
• Proposed GIPS Standards 
  • Effective 1/1/2011

Have any questions about your firm's GIPS compliance or performance measurement needs?  Please contact InvestTech Systems Consulting to speak with one of our investment performance measurement experts.

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The Outsourcing Model

InvestTech works closely with our UK counterpart, Investit.  As part of the Investit Intelligence service, a detailed research report, New Developments in The Outsourcing Model will be presented at the summer conference on July 7^th in London.  The conference, and the report, will provide you with an in-depth update on the Outsourcing Model complete with the following topics:

• What is the outsourcing value-model?

• How does component outsourcing work?

• What does the market for modular services look like?

• Is manager demand aligned with service offerings?

• Are managers looking beyond their current core outsourced operational processes?

• Are outsourced managers happy with their current arrangement and are they looking to outsource more?

• Are insourced managers reconsidering the outsourced business model?

• What changes are occurring in terms of outsource provider service and client expectations?

• Are clients prepared to accept compromises to their operating model to fit in with the way the provider works?

For more information on the Investit Research Report on Outsourcing and the summer conference, click here.

InvestTech emphasizes the continuing education of its consulting staff, recognizing shifting industry trends and clients demanding value added services from their third party providers in the present economic environment. Mr. Coffin has received his Certificate in Investment Performance Measurement (CIPM), a professional designation sponsored by the CFA Institute and says that the effort required to obtain this certification has paid dividends in his work with clients. "Knowing the story behind performance returns, as well as being able to intelligibly discuss GIPS, benchmarks and attribution, allows me to better understand the requirements and work with the client on the optimal solution." To learn more about the CIPM designation and how it can help your firm's performance measurement environment, please visit the Institute's web site at www.cfainstitute.org/cipm.