According to a new survey of 114 pan-European fund managers by the Computer Sciences Corporation earlier this year, 93 percent of European fund managers believe a dramatic increase in outsourcing, within their industry across Europe, over the next five years was inevitable as a key means of reducing costs,
Respondents outlined cost reduction, focus on core business and access to newer systems as the top three reasons to outsource. The prevalent view was that outsourcing all but core business would free fund managers to maximize profits and minimize inefficiencies, and that cost reduction is the major benefit.
A similar picture is emerging in Asia, especially in countries like Hong Kong, Singapore, Taiwan, South Korea and India.
"Very little has been done in term of outsourcing (in Asia). Though there is a demand and appetite, primarily for international fund management companies in those markets to have a service provider come in and take off their shoulders unit registery work, which they currently have to do themselves," said Paul Smith, Head of global fund services at Bank of Bermuda. The Bank of Bermuda provides fund administration, trust, custody, asset management and banking services through a network of international offices.
"In a lot of those markets, there really isn't the domestic market provisions, which enable asset managers to outsource those function," he added. "If you are major fund manager in North America you can get scale and in-source some of these process, in Asia it is much more difficult to do."
On Tuesday, Bermunda Trust, a wholly-owned subsidiary of Bank of Bermuda, and Singapore's United Overseas Bank (UOB) announced the formation of a new 50-50 joint venture, called Asia Fund Services, which will provide automated and tailored unit holder registration services to fund managers in Singapore.
The venture will ultimately provide significantly improved Web-based data access to retail investors and distributors. The new business is expected to be "live" in the first quarter of next year with an investment of S$6 million.
Typically, an asset fund manager will need a distributor of its products to reach potential clients, as well as a mechanism to collect the money. The products also have to be independently trusteed and administered. Retail investors have now increasingly sophisticated needs, which put additional competition pressure amongst distributors with numerous new products coming to the market regularly.
"We provide the back-office infrastructure to enable distributors and asset managers to sell to the general public, to take the money and issue to investors the shareholders certificates, their participation rights and obviously when they want to sell their rights to make that money available to them on redemption," Smith said. "We will provide a pioneering and independent solution for the whole industry."
The new company will be the major independent provider of unit holder registration services in Singapore, cornering about 60 percent of the market. From the outset, it will process 200,000 transactions per annum, servicing the existing clients of both entities.
The new entity will be profitable from day one, UOB executive vice-president of operations Bill Chua said, adding that UOB expects to save 25-30 percent of the cost of processing with this outsourcing.
"From UOB perspective the move will allow for rationalization and economy of scale," Chua said.
"We believe that this product does much to satisfy the increasing demands of distributors, including newly regulated Independent Financial Planning companies, who wish to outsource their often complex data requirements to suppliers who are able to provide them with a solution that is both cost-effective and scalable," said Nigel Stead, Managing Director of Bermuda Trust (Singapore).
Chua believes the roll-out of this new product is further evidence of Singapore's increasing importance as a centre for fund management and the growth of local retail demand for unit trust products
Singapore has actively sought to become a major fund management centre. The financial services industry as a whole is a significant component fo Singapore's economy, as its share of nominal GDP reached 13 percent in 2001.
Indeed, the Economic Review Committee identified the industry as a key opportunity for Singapore and suggested the country develop trustee and custody services to support the growth of the wealth management industry.
Though the initial agreement for Asia Fund Services is to be strictly limited to Singapore, the two partners have good hopes that with time they will be able to expand their services to the region.