Nowhere is the belief that tougher market conditions will force fund managers hooked on ad valorem revenues to pay closer attention to costs held more strongly than at fund administrators. Bank of New York is so keen on the idea that it has now put a figure on what UK fund managers could save by out-sourcing their middle and back offices to the giant American custodian: 1.1 billion. This figures is based on calculations of the investment required to undertake operational technology and systems upgrades for a typical median sized fund manager with around $50bn under management and typical industry percentage spends on systems maintenance.
The Bank’s research also indicate that:
*Approx. 70% of Fund Managers have outsourced or use independent custodians*10% of Fund Managers have either outsourced back/middle office functions or are in the process of evaluating outsource agreements
Interestingly, if unsurprisingly, the bank’s research shows that 70 per cent of UK fund managers have out-sourced custody but only 10 per cent have out-sourced fund administration. But Bank of New York reckons the latter is set to grow 25-30 per cent in the next 5 years equating to some $10-20 trillion in assets under management.
This rate of growth, the Bank predicts, could lead to demand for outsourcing services outstripping supply in the near future.
Commenting on the figures, Daron Pearce, Managing Director, European Outsourcing Services, said:
“With pressures being brought to bear on operational efficiencies in most asset management institutions, these figures provide quantifiable evidence of the significant efficiency, cost and control benefits can be achieved by the outsourcing of middle and back office operations’.
It even thinks growth will be fast the out-sourcing capacity will quickly be used up. The message to fund managers is clear: buy now while stocks last. Which may be why fund managers will see this “research” as less than entirely disinterested.