The decision of £118 billion ($202 billion) pan-European fund manager F&C to dissolve negotiations to outsource its operational functions to Mellon Financial Services strikes another blow to back-office operations providers. Earlier this year, Schroders and JPMorgan cancelled their outsourcing agreement, and consultants say it’s a sign that fund managers and service providers are realizing that outsourcing is not as easy to conduct as was once thought.
“The recent collapses of outsourcing deals show that the area needs to be reassessed,” says Peter Bambrough, head of outsourcing at specialist investment management consultancy Citisoft. “Five years ago, the trend to outsource became popular and many custodians thought they could offer scaleable services. At the same time, fund managers were being driven to cut costs and farm out back-office operations. Now, it is clear that both sides need to be more realistic about their needs.”
Tailor-made
Bambrough says fund managers are realizing that they cannot demand tailored back-office operations from service providers as these are not scaleable and therefore not profitable for the providers. If they enter into such customized agreements, the likelihood is the relationship won’t stand the test of time.
At the same time, Bambrough says that service providers must be more realistic about the expertise they can offer.
