While asset management firms' investments in technology have always been aimed at achieving greater efficiencies and reducing costs, the squeeze on profit margins has never been greater than it is now, following the credit crisis. This challenging environment has forced asset management executives to direct their attention to cost reduction and outsourcing.
And that's giving a tremendous boost to fund administration and other operations companies that serve the asset management industry.
As Rob Wright, global head of product and client segments at RBC Dexia, put it: "Turmoil in the global financial markets has deeply affected the profitability of the investment management industry."
Pascal Denis, a senior executive in Accenture's financial services group and the managing director of its operations in Luxembourg, added: "The backdrop of low-equity returns and pressure on fees and revenues has made efficient operations a priority for fund managers."
As a result, fund executives are outsourcing more operational functions than ever before. Seventy-seven percent believe asset management firms will increase outsourcing over the next three years in a wide range of functions-from fund accounting and custody to back-office technology and risk management.
Areas that asset managers are most commonly outsourcing, according to technology executives, include fund administration, IT services, custody, settlement, internal financial operations, reconciliation, basic human resources and basic legal functions, multi-prime broker reporting and trading.
These expectations for a ramp up in technology spending were certainly borne out at last week's CIO Roundtable at the National Investment Company Service Association 2011 Conference & Expo (see "A 5% Increase in Tech Spending? Try 20%," page one).
While technology research firms have forecast diminutive increases in spending by financial services firms for 2011, ranging from 2% to 5%, one chief investment officer said he plans to increase his spending on IT by as much as 20% this year.
Brad Lyman, director of technology at Matthews International Capital Management, explained at the CIO Roundtable that he and many other asset managers are returning their focus to projects they had delayed.
This should make 2011 a return to the expansion of fund operations.