This article was produced by Milestone Group as part of their valued Industry Partnership to Fund Operator.

Asset managers are increasingly acting to adopt resilient oversight and contingent NAV solutions, in the face of ongoing regulatory attention and maturing automation solutions. This is according to research from institutional fintech firm Milestone Group, who have been directly engaged in developing these capabilities for the global investments industry.

The Outsourcing and Oversight Report highlights a few significant industry trends. A key finding was the increase in emphasis on oversight with all asset managers surveyed across North America and Europe undertaking some form of oversight, which enables firms to oversee outsourced fund administration operations. This was up from 65% when compared to Milestone Group’s previous research from 2014. The survey also identified a material increase in concern over cyber-risk with 30% of respondents indicating it is a motivating factor in considering contingent NAV arrangements, which was not a consideration five years ago.

During the period, it seems some high-profile cases of service provider outages have instigated an air of additional caution, with 87% of respondents pointing to avoidance of reputational damage as the primary driver for oversight. In parallel with this, regulators are raising the bar for demonstrating best practice with most firms expressing awareness of increasing regulatory scrutiny and focus on operational resilience.  This looks set to continue with most firms expecting more regulatory focus on oversight over the next five years, and 52% also expecting a similar increase in focus on contingent NAV capabilities.

Some contradictions also emerge from the research. Firstly, there is a high level of recognition that automation is integral to achieving efficient and resilient fund oversight, but manual spreadsheets are still utilized as part of the oversight function by around half of respondents.

Similarly, while nearly all respondents feel that independence of the oversight function from their service provider infrastructure is important, service provider reports and portals, which do not generally qualify as independent, continue to play a significant role in current oversight practices for 73% of respondents.

The report provides further insight into the current views, evolution and future expectations in oversight and contingent NAV capabilities and practices.

The full report can be accessed here.

The report key findings can be accessed here.

 

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