Investment managers expect to outsource more back-office and custodian services in coming years as a result of upcoming operational reviews.
An audience poll at the Annual Investment Administration Conference found 67 per cent of participants expected their organisations to conduct an operating model review within the next 12 months, while 62 per cent leaned towards outsourcing service components as a result of a review.
The Australian Custodial Services Association (ACSA), which organised the conference, said institutional investors were facing increasingly more complex demands on risk management, governance and data monitoring, and they were looking for more detailed, accurate and timely information to aid their decision-making process.
"Institutions are facing other, sometimes competing, factors, including growing attention to after-tax returns, monitoring and management of risk and improved transparency," ACSA chair Paul Cutts said.
"All these factors are testing the suitability of existing operating models and sometimes the boundaries between internally managed and outsourced services.
"While we expect to see improved efficiency through the industry's ongoing commitment to standards and automation in key areas of investment infrastructure, at the same time the needs of our clients to differentiate and to adapt to external change imply demands for new and extended services."
National Australia Bank (NAB) asset servicing executive general manager Leigh Watson said he had noted an increasing demand for the interpretation of captured data by providers of custodian services.
"Traditionally, custodians have provided a good analysis of data history, but [clients] want us to do more forward-looking analysis," Watson said.
This analysis focuses particularly on understanding risk in the investment portfolio and includes scenario testing to see how particular events, such as corporate actions and capital events, would influence investments.
NAB also introduced a passive currency overlay last year for its clients to help manage fluctuation in currency rates.
"A passive overlay allows us to capitalising on data we already have," Watson said.
However, Milestone Group client relationships and business development managing director for the Asia-Pacific region Mark Neary said the results of the poll should also be seen in the light of the make-up of the audience rather than as an indication of a general trend.
"Realistically, you tend to find that in Australia asset managers have a higher bias towards outsourcing, while on the wealth management side - in terms of management of fund structures, the linked structures within the life companies or platform operations - they tend to be a bit more focused on in-house," Neary said.
"If I just divide up the numbers in the room, there is a good number of asset managers. The result on the operational review is probably the more interesting aspect."
