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Study reveals growing complexity is leading to more outsourcing in the fund management

Monday, March 25, 2024
Opalesque Industry Update - Over the next two years, 99% of fund managers believe it will become much harder to navigate regulatory complexities, and this will fuel greater levels of outsourcing and a stronger focus on innovation. This is according to new research from Carne Group, a leader in fund regulation and governance solutions for the asset management industry.

Carne Group commissioned research with fund managers in 10 countries that collectively manage $1.6 trillion. The study found that over the next 12 months, 41% expect to dramatically increase their use of third-party service providers when it comes to their fund administration functions, and a further 50% expect their use of them to increase slightly.  Those surveyed identified the top three reasons for this increase being the difficulty in recruiting appropriate staff, the growing burden of regulation, and operating in more jurisdictions.

When it comes to the level of outsourcing of the management of fund management companies to third parties, 79% of fund managers surveyed expect this to increase over the next three years. The study identified the main reasons for this being the ability to launch different product sets, increasing speed to market and being able to deliver stronger fiduciary management of funds.

In a separate global study from Carne Group with wealth managers and institutional investors including pension funds, insurers and family offices who collectively have $1.7 trillion in assets under management, 94% said that between now and 2026 the ability of institutional investors to manage the regulatory environment will become much harder. Similar to the fund manager study, when it comes to the administrative functions at their organisation, over the next 12 months 64% expect to outsource more and increase their use of third-party service providers.

With increasing levels of outsourcing in the fund management industry, the sector can focus more on innovation. When asked to identify the three main factors driving innovation in the industry, the fund managers surveyed selected advances in technology as the biggest, followed by the increased use of alternative data, and then greater insight on how alternative asset classes perform in different environments.

John Donohoe, Group CEO at Carne Group commented: "Many asset managers are struggling with the impact of the continually increasing regulatory burden, the costs to their businesses and impact on investor returns. To address this, they are making greater use of third-party specialist providers, enabling them to speed up their time to revenue and to focus on what matters most… product innovation, delivering investment performance and raising assets.

Cost pressures and fee compression are leading to consolidation in the fund management industry. As this gathers pace, the winners will be those that find effective ways to navigate the changing environment. Successfully addressing this will also allow them to explore greater product innovation and differentiation, and faster speed to market."

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