TSIA1 defines managed services as the practice of outsourcing day-to-day technology management responsibilities to a third party as a strategic method for improving operations and accelerating a return on technology investments. Managed services represent one of the fastest growing lines of business, outpacing hardware, software, and even cloud solutions. This article explores the benefits of managed services dedicated to global investment managers.
Investment managers’ ongoing challenges
Investment managers are increasingly struggling to cope with a growing complexity arising from regulatory demands, reporting and transparency requirements, technology trends, and new asset classes like alternatives. Simultaneously, they need to mitigate the pressure of shrinking margins just to stay in business in a continuous low interest rate market environment.
In a recent WBR Insights report2 focusing on multi-asset investment operations, 79% of the investment management firms surveyed answered the question “What are your strategic priorities for operations for 2019?” with the reply ‘Decreasing operating cost and improving operating leverage’, while 63% chose the response ‘Decreasing the cost of operational risk/loss’. When the same question was posed in the corresponding 2018 survey, the replies were surprisingly similar. The responses and their similarities allow us to draw two conclusions:
- Firstly, the main challenges facing the buy side, including reducing cost and limiting operational risk, are caused by long-term trends;
- Secondly, buy-side firms find it difficult to solve for these challenges.
In another WBR Insights report3 dedicated to the cost of investment reporting, 66% of the respondents pointed to ‘Data gathering’ when responding to the question “Where is the most time spent when producing investment reports?” With the volumes of data requested from clients increasing, it will become even more important for firms to be able to efficiently handle and model the data being produced for client communications.
Managed services can help tackle operational challenges and offer a number of related benefits
With the operational challenges faced and a shared wish among investment managers to become more cost-efficient, why not go for outsourcing or offshoring some specific operational processes? Choosing such a strategy would accommodate an increasing appetite among firms to focus on their core business: to invest and grow their clients’ wealth. A way to go about realizing this strategy would be for firms to integrate managed services at some level in their business instead of pursuing the continuous challenge of running all operations on their own.
… why not go for outsourcing or offshoring some specific operational processes? … such a strategy would accommodate an increasing appetite among firms to focus on their core business… A way to go about realizing this strategy would be for firms to integrate managed services at some level in their business …Gert Grann Jacobsen, Head of Operational Services, SimCorp
Managed services have the advantage that they can help solving multiple operational headaches by reducing complexity and offering timely access to skilled resources that enable ease of operation, security, and business continuity throughout the whole investment management operating lifecycle. Integrating managed services facilitates adoption of new solutions by requiring less investment in technological skills and training. Firms’ resources can to a corresponding degree instead be redirected to innovation and strategic initiatives. This will have a direct positive impact on employee satisfaction and talent attraction in tomorrow’s workplace, which is expected to offer a challenging, rewarding work experience.
Managed services also provide a high degree of agility that enables organizations to adapt to new business or legal requirements and thus on a continuous basis be able to align strategy with operations thanks to globally delivered expertise. Time-to-market for launching new business services or products is thus greatly improved, helping to realize corporate ambitions and stay ahead of competition. Finally, managed services help mitigating business continuity risk and substantially improve the quality and accuracy of system environments, enabling portfolio managers to take better and more informed investment decisions on behalf of their clients.
Managed services have the advantage that they can help solving multiple operational headaches by reducing complexity and offering timely access to skilled resources that enable ease of operation, security, and business continuity throughout the whole investment management operating lifecycle.Gert Grann Jacobsen, Head of Operational Services, SimCorp
A cost-effective business thanks to predictable subscription fees
Managed services providers are offering the environments, tools, and repeatable processes required to support multiple clients with similar needs, hence enabling economies of scales and lower costs. On the financial side, the possibility for investment managers to “pay-as-you-go” for capacity “as and when needed” provides the flexibility required to run their business in a cost-effective manner. Such a subscription-based model embraces the preference to be able to better predict IT expenses over time and better control the total cost of ownership (TCO) by moving from capital expenses to operational expenses. Also, since everybody sees the value of streaming music on Spotify or movies on Netflix, why not apply the same principle to the investment management business?