FundTech talks to Amundi Services’ Romain Sauvage and Gianluca Minieri about an increased demand for outsourced dealing among fund managers, driven by rising technology costs and the impact of Covid-19.
The disruption caused by the Covid-19 pandemic has focused buy-side firms on their operational priorities and what functions they should keep in-house and which ones they should delegate to a third party. One of those functions is dealing.
The move towards outsourced dealing is also the result of a broader trend among fund managers to seek an outsourcing solution for a growing range of front-office processes and functions, something often described as the third wave of outsourcing.
But the impact of rising technology costs and the operational challenges accentuated by the pandemic and a mass move to home-working has increased fund managers’ interest in outsourced dealing and accelerated the trend.
Amundi is one of the few asset managers able to offer an outsourced dealing service on clients’ orders to other buy-side firms. The service has been running since 2005 and currently has around 40 clients, 15 of which are external.
The solution offered by Amundi Services, covers order reception, trades analysis to define the best execution strategy for all asset classes and geographies, and order execution. Depending on the client operating model, the solution also covers middle office services for post-trade processing.
The dealing services solution is built around four international trading desks – one in Singapore for Asia securities, one in Dublin for Americas, London for FX and Paris for the other asset classes. As Gianluca Minieri, deputy head of the trading desk, says: “We can provide best selection and best execution for our clients orders for all asset classes and cross time-zones. This gives us access to more liquidity pools.”
Amundi developed a system called ALTO* Trading to support the dealing operations. This system is used by Amundi’s traders and is responsible for more than 2.2 million trades every year. Consequently, says Romain Sauvage, head of product & marketing, Amundi Services, “the technology behind the platform needs to be secure, robust and with good performance. ALTO* Trading, part of ALTO*, a full Portfolio Management Solution, is the module for traders to capture, analyse and execute orders for all asset classes.”
“We also have huge connectivity with execution venues and execution management systems such as MarketAxess, TradeWeb and others, as well as more than 200 counterparties, to ensure access to liquidity and best execution,” says Sauvage.
The search for liquidity has become a much more important task in trading over the last decade partly because of regulation changes like MiFID which not only fragmented liquidity by facilitating a much greater number of execution venues but also mandated the need for best execution.
This has put much further pressure on trading desks and their technology budgets. Not only do they need to connect to more venues, they also need to employ smart order routing technology and invest in transaction reporting tools. Dealing has also become a more complex process as a result of more sophisticated investment strategies. In the search for yield, managers are looking to emerging markets and more exotic asset classes, all of which requires extra resources.
All of this complexity has intensified since Covid. “It is easy to trade when liquidity is abundant,” says Minieri. But when liquidity is disappearing from screens, it becomes a much bigger concern. Added to that is the challenge of setting up your traders to work from home with all the equipment that comes with it.
Furthermore, says Minieri, volumes have actually increased during the pandemic leading asset managers to examine their operating expenses even more intensively and naturally this is leading more of them to consider outsourcing. “The trend for outsourced dealing is changing even before the Covid crisis and we are seeing more interest in larger players, including buy-side firms, that already have a trading desk,” he says.
Amundi is also making constant improvement to the outsourced dealing service to develop additional functionalities to clients. One new feature is a digital reporting tool, accessible via a web portal. “We previously provided clients with a pre-defined file with daily trading costs and execution data and now we give more power to the client with a digital tool” says Sauvage. “The objective is to give more autonomy to the client to access directly to analytics and produce operational and regulatory reporting.” The tool has been developed in co-construction with clients and should be available in Q1 of 2021.
Outsourcing demand and solutions
Although the demand for outsourced dealing is increasing, there is still some resistance from firms concerned about delegating front-office tasks to another investment manager and worried that they will lose their connection to the market because they are no longer interacting with their brokers. But within the Amundi Services offering, clients continue their relationships with brokers and analysts and access to research. Furthermore, all trades are carried out in the client’s name, maintaining their visibility in the market.
As the European leader in asset management1 with more than €1.65 trillion AuM as at 30/09/2020, clients benefit from Amundi’s capability and standing in the market, including access to liquidity and bargaining power with the sell-side, says Minieri.
As Minieri says: “Our dealing experts, organised by asset classes and by markets, are solely dedicated to delivering performance and added value via deep market knowledge and a client-centric approach. As a dealing services provider, we ensure an equal treatment for all our clients and a full data separation to offer best-selection and best-execution.”
*Amundi Leading Technologies & Operations
1. Source: IPE “Top 500 asset managers” published in June 2020 and based on AuM as at December 2019.
The information contained in this document is deemed accurate as at 30 November 2020. Data, opinions and estimates may be changed without notice. Document issued by Amundi Asset Management, a French “société par actions simplifiée”- SAS with capital of 1 086 262 605 euros – Portfolio Management Company approved by the AMF under number GP 04000036 — Registered office: 90 boulevard Pasteur — 75015 Paris — France — 437 574 452 RCS Paris – www.amundi.com
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