Why outsourcing is not what it used to be

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Open architecture is important for the outsourcing of various investment functions, particularly asset servicing, according to Sinclair Scholfield, the head of platform solutions for Asia Pacific at State Street. “We’re moving from asset servicing to asset intelligence,” he told the Fund Summit conference.

“We can’t be all things to all people,” he said. Even though State Street, for instance, had its own risk management system used by clients, it also allowed for people to bolt their own risk systems into the State Street platform.

“It’s an opportunity to provide a better service with the integration of the front, middle and backoffices. “They have to retain their connectivity – not everyone wants the same risk system, for example,” he said.

Bruce Russell, a director of consulting group Shoreline, said that people were less philosophical – and more practical – about outsourcing than they used to be. “If you want the benefits of new technology and scale, you have to at least look at what outsourcing can provide,” he said. But outsourcing is not without its potential problems.

“A lot of what an outsource partner [in asset servicing]does is becoming customised,” Russell said. “The trend is to make sure your partner understands your business.” The notion of ‘asset intelligence’ rather than ‘asset servicing’ was in recognition of this trend, Scholfield said.

Another theme which resonated throughout the Fund Summit conference, which focused mainly on operational developments and trends for asset owners and managers, was that price was no longer a prime determinant in the decision to outsource nor the choice of outsource partner.

Bruce Russell said: “There’s the old cliché that ‘you get what you pay for’. Even when we help clients who are looking for savings from an outsource arrangement, we also look at future cost avoidance.”

He raised an interesting question with most of the big custodian banks either providing or looking to provide a smoothly integrated back, middle and front-office offering. That is, when you get to the front office, where the big investment decisions are made, where lies the liability for a mistake in information provided?

Scholfield said that State Street anticipated becoming a “platform with data moving between systems”. He said the firm did not need to be exclusively proprietary in its offerings.

– G.B.

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