Asset Manager Operational Efficiency Demands Grow, But Fund Administrators Hold the Answer

Driving operational efficiencies is a key and growing priority for the asset management industry, according to the latest Temenos Multifonds Every Fund Survey.

The survey found operational efficiency is industry participants’ #1 focus for innovation over the next 12 months – ahead of product development, digital channels and risk management. Nine out of ten respondents said operational efficiency will become an increasingly important target. The same number believe improving operational efficiency plays a crucial role in increasing profitability.

Fund administrators have a huge opportunity to partner with investment managers across the traditional and alternative asset management space to tackle firms’ operational efficiency challenges. But providers have to be up to the task – and that means having both the expertise and infrastructure to meet clients’ demands.

Fund Administrators Proving Their Worth across Asset Classes

Improving operational efficiencies and scalability has become an imperative for asset managers in all sectors and markets, as they battle to:

  • Drive down costs.
  • Bolster margins.
  • Meet onerous compliance requirements.
  • Support complex investment strategies.
  • Stay current with technological innovations.
  • Remain competitive against existing rivals and the new breed of market entrants.

Outsourcing non-core middle- and back-office services to an expert third-party fund administration provider offers a proven solution to all these problems.

Investment managers’ time, focus and resources are also freed to focus on their key competencies: generating investment returns and servicing clients. Little wonder then that the fund administration model is gaining traction right across the asset management spectrum.

The trend has been especially marked in the alternatives sector, where outsourcing fund administration has been less commonplace historically. Private equity has seen the greatest aggregate asset growth, according to eVestment’s latest Alternative Fund Administration Survey, but real estate and hedge fund administration outsourcing are also gaining popularity.

As the eVestment survey pointed out, strong and growing institutional investor interest in alternatives is fuelling demand for institutional quality infrastructures. In this environment, operational accuracy and efficiency have become prerequisites.

Rather than hire in-house teams and invest in robust technology infrastructures, asset managers are therefore turning to specialist fund administrators as key partners to deliver the necessary capabilities and enhance their potential for success.

Does Your Fund Administrator Have What It Takes?

But outsourcing is no slam dunk.

With investor due diligence demands becoming more detailed and exacting, third-party administrators need to demonstrate to managers and their investor clients they are up to the job. Yet many are not, according to the Temenos survey.

It found:

  • A quarter of fund administrators and transfer agencies are not keeping pace with asset managers’ requirements.
  • Technological innovation to enhance providers’ operational support capabilities is lagging, with 94% of respondents saying it needs to accelerate.

The top value-add areas of innovation the survey said asset administrators need to focus on were:

  1. Supporting new asset classes (e.g. ETFs).
  2. Unlocking insights through data analytics.
  3. Opening up new markets and jurisdictions.
  4. Increasing the speed with which they adapt to regulatory change.
  5. Shortening the time it takes to produce NAVs.
  6. Increasing client oversight and control.

Finding the Right Fund Administration Capabilities

So what should you look for in a fund administrator?

Cost is obviously a factor. But pricing shouldn’t be the only – or indeed primary – consideration.

The emphasis instead should be on finding a partner able and willing to match your service needs, and with the flexibility to support your growth and evolving business priorities. That takes a combination of sophisticated technology and the right skillsets.

Capabilities to look for include:

  • Breadth of service offering, encompassing key middle- and back-office processes.
  • Ability to support investment strategies across regions, currencies and asset classes.
  • Quality assured processes.
  • Rapid service response times, with 24×7 support.
  • Expertly trained and highly experienced staff.
  • A sophisticated and efficient technology and operational infrastructure.
  • Robust back-up and recovery capabilities.
  • Seamless scalability to support your future growth and business direction.
  • Easy onboarding, with fast service set up.
  • Cost-effective offering that is financially attractive to your firm.

Outsourcing only makes sense if your fund administrator can do a better job of managing your middle- and back-office operations than you can in-house, and at the same or lower cost. Ultimately, outsourcing should provide a reliable, scalable platform that gives you the operating efficiencies, flexibility and confidence to grow – whether that is in assets under management, asset classes, investment structures, markets or client types.

So choose your partners wisely.

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