As the investment management industry uses more complex financial instruments and faces increasing pressure to improve performance, cut costs and comply with regulatory requirements, more firms are turning to third-party service providers for administrative, back- and middle-office functions.
Those are the findings of a survey of more than 150 finance executives from mutual funds, hedge funds and other asset management firms who attended PriceWaterhouseCoopers’ Investment Management Industry forums in Boston and New York over the past week.
Other findings included:
Approximately one in three (31 percent) investment management firms said they plan to increase their outsourcing arrangements with third-party providers over the next two years.
Six in 10 executives surveyed (62 percent) said they would maintain their current third party service arrangements, while only 7 percent said they intend to bring certain previously outsourced operations back in-house.
Forty percent of investment management finance executives said their primary reason to expand outsourcing is so that the firm can focus on core competencies. One in three (31 percent) outsource as a way to improve the quality of functions their finance teams don’t have adequate time or resources to handle on their own. Only 29 percent outsource primarily as a way to cut costs.
Outsourcing is one of 10 top issues the investment management industry must grapple with in the year ahead, which are driving increased focus on internal controls, including oversight of third-party service arrangements, according to PricewaterhouseCoopers.
The firm has issued a report entitled, “Looking Ahead: Strengthening the Structural Foundation of the U.S. Investment Management Industry,” which calls on the industry to strengthen internal controls in response to increasing challenges.
“Outsourcing to third parties is about delegation, not abdication of accountability and responsibilities,” says Barry Benjamin, U.S. Investment Management practice leader. “The investment management industry is enjoying a robust period of growth, but it is imperative that investment management firms continue to invest in their structural foundation, infrastructure and internal controls so they are strong enough to meet the challenges posed by the regulatory and legal environment, increased competitive pressure and more diverse product mix.”