Aani Nerlekar, Director, Solutions Consulting, SS&C Advent: What are the benefits of co-sourcing and outsourcing and how does a firm create a framework and partnership to better serve clients?

Alain Mandy, Chief Operating Officer, Wellington Management: I have 22 years of experience in outsourcing and managing service providers. Throughout the years, there has always been this question around the benefits of building inhouse versus outsourcing services.

Over the years, asset managers have been focusing more on their core business, investment, whilst looking to keep up with the various emerging technologies. This is difficult to do, especially when it comes to scale. If you want to scale a business, you need to work with outside service providers.

"Asset managers should be focusing on their core business, which is managing money, building portfolios and dealing with clients"

When working on big projects, time to market is another critical factor, and this is a key benefit to outsourcing. Something which can take years to do inhouse, can take weeks or months when outsourced to experts. If you don’t outsource, it can be very difficult to keep up with new technologies and regulatory changes.

Asset managers should be focusing on their core business, which is managing money, building portfolios and dealing with clients. Therefore, I feel that outsourcing is a very good thing to be doing.

Aani: At which stage of a firm’s lifecycle should they evaluate outsourcing options to alleviate the operational burden of legacy system workarounds?

Alain: It varies, and there is not one magical answer as to when the right time may be.

On the topic of Covid, it is interesting, as Wellington were planning some big outsourcing projects just before the pandemic but have since debated whether to wait. No one wants to carry out a big project when everyone is working from home, but in our case, we did execute them during the pandemic, and it worked out great for us.

"Sometimes when the business becomes too complex and risky, organisations can decide that they don’t have the skills or expertise required and so looked to outsource."

Sometimes, when there is a change in management or when a team leaves, this can trigger the consideration of outsourcing. It could also be linked to regulations, for instance, when Mifid II came into Europe a few years ago, there were many more requirements introduced and people started to look at outsourcing providers to meet them.

It can be related to risk, and every firm has a different risk appetite. Sometimes when the business becomes too complex and risky, organisations can decide that they don’t have the skills or expertise required and so looked to outsource.

Aani: Liability is a concern, specifically around the middle and back office operations such as trade settlement and corporate action processing. How would you recommend managing this with managed service providers?

Alain: As an asset manager, you can outsource the work, but you can never outsource the responsibility in the eyes of the regulator. Boards are now wanting to understand what the model of an outsource provider is, how much time is spent there and what is in the contract.

You need to make sure that you have KPIs and SLAs in place, but also that you really manage the oversight and how you make sure that you cover yourself.

Aani: How can you evaluate a managed services provider’s offering and balance different stakeholder demands?

Alain: Feedback is number one. Because, when you have an offer for a managing provider who you don’t know very well, it can be more difficult to make an informed decision.

Another element that has become more important is integration of the system. How we make sure that whichever service provider we use, they can integrate to our ecosystem and systems more generally.

"A more recent factor, which has been perhaps increased due to Covid, is around cyber security."

How the data is managed and how it fits into our reporting is also critical to consider.

A more recent factor, which has been perhaps increased due to Covid, is around cyber security. What are the risks involved with outsourcing, and how can we ensure that any manager has a good solution in place for this issue?

Aani: Is there a concern that your firms’ unique requirements will not be prioritised with your outsourcing providers concern? How detailed are you in your SLA with the outsourcing provider?

Alain: Sometimes when you start a relationship, you don’t always know the finite details. Updates to the requirements does need to be done from time to time.

With SLAs one aspect must be very clear; what are the expectations? What are the KPIs or KRIs, and how will you measure these? You need to ensure that you have full oversight and transparency with the service provider.

Aani: How do you obtain buy-in across the organisation when adopting the MS approach and how do you manage control and oversight?

Alain: The idea is more bottom-up as opposed to top-down. It is important that you can quickly say what the benefits and disadvantages are of doing this. It isn’t always about the money, sometimes it is about risk, scale, servicing and improving the client experience. I would try to strike the balance to convince staff of the benefits.

Aani: How can managed services help meet the demand of investor transparency with a flexible offering focused on reporting and client communication?

Alain: There is definitely more demand for investor transparency. There is also a demand to be more flexible in the offerings. It is about improving the client experience, which is mainly what asset managers are looking for.

Aani: If we think about the long term, say the next 5-10 years, how big do you feel the third-party market of outsourcing, whether it is fund administration, custodial, middle office, will become? What type of market would it be and what would influence the success of the firms? What functions do you feel will trend towards this outsourcing model?

Alain: In the past two-years we have seen more technological advances than in the last ten-years.

I can see that between front, middle and back office all will become integrated. From the portfolio managers to the custodian.

"Blockchain is an interesting example, and I am currently working on a couple of projects involving this"

In ten-years, there will be new technologies. Blockchain is an interesting example, and I am currently working on a couple of projects involving this. Whilst I do not feel it is market ready yet, there are a lot of projects of note here.

Aladdin and other platforms are offering more integration, and we will see a lot of improvement in this area in the coming years.

 

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