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Supplements » Nordics Report 2011

OUTSOURCING: Catching the wave

WaveNordic fund managers are becoming more comfortable with outsourcing their fund administration. Although several still carry out these functions in-house, things are beginning to change. Angèle Spiteri Paris reports

The trend for outsourcing has swept through most of Europe and the crisis made the need for fund managers to focus on their core expertise more acute. But home-grown managers in the Nordics have been laggards and some are only now catching up with the rest of the continent.

Håkan Valberg, senior vice-president and general manager of the Emea region of Advent Software, says: “In Scandinavia many asset managers still carry out their own administration.”

In fact, East Capital, one of the most successful independent Scandinavian asset managers, carries out all its fund administration functions in-house. Paul Carr, head of product management, says: “We still perform all of the fund administration in-house; the client services, transfer agency, Nav calculation and compliance. We have our own in-house solutions to carry all this out.”

But the potential benefits through this outsourcing has not passed East Capital by. The firm is currently considering the possibility of teaming up with a third-party service provider.

Carr says: “We’re at a crossroads. We’re weighing up the costs, the risks and the benefits. Our discussion has been influenced by changes and opportunities offered by Ucits IV. If the risk of doing everything in-house becomes too burdensome, it might be worth outsourcing these functions, even if the actual cost of doing so may initially be higher.”

This is because the benefits of passing on that responsibility to a specialist could potentially offset that additional cost, especially in light of increasing regulation around some of these functions.

He adds: “Also, keeping fund administration in-house requires continuous investment in systems. Specialist providers have to have the best in order to remain competitive so getting together with them may avoid us having to make that additional investment.”

But this does not mean that we will see East Capital handing out a mandate shortly. “Outsourcing is an interesting concept but we’re nowhere close to making a decision. We’re still weighing up all the options,” says Carr.

Carnegie, another local manager, also has not outsourced its administration. Hans Hedström, president at Carnegie Fonder, says: “For our Sweden-registered funds we handle the whole process ourselves. We see challenges going forward because we
are forced to do a lot on the reporting side of things.”

In the case of Norwegian player Skagen, some outsourcing arrangement is being put in place. Åge Westbø, deputy chief executive and one of the founders of the firm, says: “We’re outsourcing aspects of our client reporting. The agreement with Cormarc is in place and the project will commence in June. We’re putting this outsourcing agreement in place for our reporting to be better, cheaper and more efficient. If the outsourcing agreement doesn’t provide this, then we’ll just do it ourselves. But at the end of the day, we’re an asset manager and that is our core strength.”

One thing that may push managers like East Capital and its peers to consider outsourcing their administration is the fact that two local banks – SEB and Swedbank – now provide this service.

Experts say that from a business point of view, having local players providing fund administration should encourage more outsourcing on behalf of the asset management community in the region.

And in some parts of the industry it already has done.

Dirty word
However, some Nordic players have begun to move in this direction. Henrik Staffas, head of fund services at Swedbank, one of the two large local banking players that offer fund administration, says the market is beginning to open up.

“Managers are beginning to investigate the possibility to outsource their administration,”he says. “We’ve seen several small to medium-sized players take steps to do this while some larger fund managers are looking into it and evaluating the possibility of outsourcing; there is a growing interest in the market.”

Experts say that outsourcing is no longer a dirty word in the Scandinavian markets; it was considered to be simply a cost-cutting exercise which was somewhat looked down on.

But now that the crisis made it clear that all actors in the financial markets have to concentrate on what they are good at, selecting a fellow expert to handle services you are not able to provide is becoming acceptable.

In the roundtable discussion Niklas Nyberg, global head of GTS financial institutions, global transaction services, SEB says: “For many years asset managers in the Nordics have been used to doing everything themselves, but there is a clear trend in the market that clients want to offload some of their administrative workload.”

Alfred Berg, the Nordic boutique of BNP Paribas, is one example of a local manager who has ridden the outsourcing wave.

Tomas Scherp, country manager, CEO at Alfred Berg, says: “We outsourced some of our administration relatively recently. There has been a clear trend to do this overseas and the Nordic region is now catching up.”

Also in Funds Europe’s discussions with market commentators, some claimed that in Sweden, the regulator is not clear on what can and cannot be outsourced.

In reaction, Jonatan Holst, acting chief press officer at Finansinspektionen (FI), the Swedish regulator, says: “The law is very clear that outsourcing is allowed. There has been some discussion as to where to draw the line on how many functions that can leave the building but to say that the issue is unclear is not a proper description.”

There are a number of reasons fund managers may seek to outsource the administration of their funds.

“Investment managers want to focus on their core business, performance, distribution and client service,” Staffas says. “Some managers are also growing so they’re faced with a choice, they either could employ more people to handle the administration or outsource the function to a provider.”

One such example is Indecap, a medium-sized Swedish fund manager that recently outsourced its administration function to Swedbank. Staffas says: “They made the decision to outsource because they were expanding a lot and had issues covering the growing assets. Now they’re able to focus and dedicate more resources to their clients and distribution network.”

Another reason for a smaller player to consider outsourcing is the growing administrative burden due to increasing regulation. One market observer says: “You would need to invest in IT and additional infrastructure and to do that you generally need to increase the number of assets you manage. For firms in this situation, it makes sense to outsource and to consider whether they should hand over the administration
to a partner.”

And this isn’t only true for smaller players.Staffas says: “From their point of view, large fund managers think they can do it best in-house and want to stay in control of certain processes. But now even big managers are looking for external providers because they’re having difficulty carrying out all those functions internally.”

©2011 funds europe