Spring 2013

OUTSOURCING: Is it time to outsource?

OutsorcingAsset managers in the Mena region have outsourced fewer back and middle-office functions than their peers in the West. Funds Global asks whether this will change.

DEBORAH FLANAGAN, MANAGING DIRECTOR, APEX FINANCIAL OUTSOURCING SERVICES

Who are your clients for back and middle-office outsourcing in the Mena region, and what are their needs?
Our clients range from family offices looking to produce better reporting to investment managers outsourcing all middle-office functions, including trade support, reconciliation, internal and client reporting, independent corporate action monitoring and break resolution.

Their needs do not differ much from those of our US and European clients. The understanding of the importance of a robust middle office function does, but that is slowly changing with an increased understanding of operational risk and the importance of fast, accurate, timely data.

Events like the Arab Spring left some managers scrambling to understand their total exposure to a market and may have highlighted the need for accurate data that could be tailored to a particular requirement.

Have you seen an increased demand for middle-office outsourcing?
There is an increase in demand, regionally less so than internationally. The largest uptake in middle-office outsourcing has been driven by the US and Europe. However, because of the location of the UAE, which is between Asian and European markets, we are servicing a large majority from there.

What are the main concerns clients have that might prevent them from outsourcing?
Perceived loss of control and confidentiality are always concerns. In the middle-office space, requirements change often and it is essential for outsource providers to provide an adaptable model that will service these needs.

In Europe, regulation seems to be pushing more clients to outsource. Do you see a similar trend in the Mena region, perhaps as a result of the UAE's new investment funds regulation?

Eventually, yes, but it is still behind the US and Europe. The focus is more on custody and admin services and less on middle office.

GLYN GIBBS, HEAD OF BUSINESS DEVELOPMENT, MENA, HSBC SECURITIES SERVICES

Who are your clients for middle-office outsourcing in the Mena region, and what are their needs?
The buy side has been outsourcing successfully for many years in the fund services and asset management space and this trend successfully for many years in the fund services and managment space and will continue, with Mena being a key region for servicing clients. However, only recently have broker dealers and banks looked seriously at outsourcing their middle and back-office processing. Even more recently, Mena asset managers have started to consider the possibility of using such services.

What are the benefits of outsourcing?
An equity will go through around 160 events in its trade life cycle, from pre-trade validations to books and records reconciled settled trades. Of these processes, only 40 could be considered to be proprietary or a value added service to clients of sell side firms. Much of the processing life cycle could be carried out by an outsourcing firm.

Change is being driven by the increasing complexity of financial products that a fund may use and that they need systems support for, allied to more demanding regulations, such as the Alternative Investment Fund Managers Directive. In the case of Mena funds, there is also often a lack of scale to support the necessary level of investment required.

What are the demands of clients in the Mena region when it comes to operations outsourcing?
In Mena, there are added complexities for asset managers. There are multiple regulators in the region and clearing and settlement is being carried out by execution brokers. However, all markets are evolving.

MICHAEL SLATER, DIRECTOR OF MIDDLE EAST BUSINESS DEVELOPMENT, NORTHERN TRUST

How do operations outsourcing deals in the Mena region differ from those in the US or Europe?
The investment operations outsourcing landscape in the Middle East is not dissimilar to that in the US or Europe. However, asset managers based in the Gulf Cooperation Council have a greater propensity to manage local assets and, as such, we see a demand from Mena managers for component outsourcing.

What are the demands of clients in the Mena region when it comes to operations outsourcing?
We see an increasing demand from fund managers for assistance with internal governance and support in implementing global best practices for back and middle-office operations. As the market develops we continue to see more need to act as a data aggregator, providing real-time and end-of-day information.

How will regulatory change in Mena, particularly in the UAE, change the landscape for fund administration?
Regulatory change coupled with the economic environment means institutions and asset managers across the globe are focusing more than ever on managing risk and looking for increased transparency and more detailed reporting.

©2013 funds global MENA

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