Tag Archives: Asset Management Outsourcing

In recent years, the asset management sector has been experiencing a major change that is being driven by heightened fee pressures, regulatory complexities and fast-paced technological advancements. To remain profitable while providing better returns, many firms have taken up outsourcing as one of their strategies. This means that they can hand over some of their operational tasks to specialized third-party providers; thus, enabling them to concentrate on their primary areas like management of portfolios and relationships with clients.

 

The Rising Demand for Asset Management Outsourcing

The asset management outsourcing sector has seen a scramble in recent years due to operational difficulties, escalating costs and the requirement for specialized skills. According to The Cerulli Report—U.S. Vendor Management & Operations Outsourcing, 33% of asset managers are now using asset management outsourcing to help with their entire back-office operations, while just 20% do so in the middle office function. Cost savings are the biggest draws behind this trend, as 73% of managers cite them as their main reason for asset management outsourcing. Moreover, 65% of asset managers say that outsourcing helps them exploit external capabilities as well as boost productivity levels internally.

Many companies have been forced to reevaluate their operating models because of cost problems or more specifically fee compression. As a result of passive investment vehicles like ETFs, the fees charged by active managed funds have been declining. This trend has made it hard for asset managers to keep their margins intact. By outsourcing non-core functions including regulatory reporting, compliance and data management; companies are able to lower operational expenses while still ensuring that they maintain good quality service.

In addition, the growing complexity of worldwide rules has led to a booming demand for specialized compliance services. To ensure that asset managers stay within the bounds of these evolving regulations, such as anti-money laundering (AML) and environmental, social and governance (ESG) regulations, they can engage asset management outsourcing partners who specialize in regulatory reporting and governance to help them avoid non-compliance risk.

 

Regional Variations in Outsourcing Trends

The global outsourcing market reached $971 billion in 2023, marking a 7.76% increase from $901 billion in 2022.

Regional Variations in Asset Management Outsourcing Trends

Regional Variations in Asset Management Outsourcing Trends

United States

The IT outsourcing industry in the U.S. will see immense growth, with projections estimating it to be worth $168 billion by the year’s close in 2023. This owes to how much of its outsourcing sector roots lies here. The general business process outsourcing (BPO) market for finance and accounting services in America is expected to amount to about $60 billion this year alone, primarily fueled by demand for more efficient and cheaper solutions.
The collection of ESG data and report preparation has become so critical for asset managers in Europe due to the pressure from authorities in charge of maintaining environmental standards. This has led to an increase in demand and subsequently growth for services like asset management outsourcing since asset managers have become more aware that compliance with government regulations is no longer optional, but a necessity.

Europe

This pushing for ESG compliance has made it crucial for asset managers to use asset management outsourcing to contract out their gathering of ESG information and reporting as well. Owing largely to rising acceptance levels regarding regulatory compliance services, the European market for BPOs is expected to grow by 9.35% CAGR between 2023 and 2030.

Asia

Due to intricate legal structures, specialized compliance outsourcing through asset management outsourcing is quickly gaining traction in Asia, more so in markets like China, Singapore and Japan. The business process outsourcing (BPO) sector in Asia is anticipated to extend because of the ongoing transition by companies into hybrid models that blend classical choices with cloud-based ones​.

Common Trend Across Regions

Worldwide, managers look for asset management outsourcing partners who provide both operational assistance and advanced technological solutions.

The intricacy of global asset management necessitates adaptable, customized outsourcing models that correspond to different geographical contexts.

 

Impact of Technological Innovation on Outsourcing Strategies

By being more adaptable and expandable, these technological advancements allow asset managers to focus on core decisions while improving service delivery operations.

Impact of Technological Innovation on Asset Management Outsourcing Strategies

Impact of Technological Innovation on Asset Management Outsourcing Strategies

 

Artificial Intelligence (AI) and Automation

Estimations suggest that 43% of mid-tier asset management companies have adopted AI-enabled software, which enhanced their stock trading and reporting accuracy, besides promoting decision-making with data. Also, the use of artificial intelligence tools such as robo-advisors and chatbots in asset management became popular, making operations more efficient.

Cloud of Computing

72% of asset management companies have adopted it in order to streamline data storage and access. Real-time data access from any location through cloud technology enhances the decision-making process as well as operational transparency.

Blockchain technology

The decentralized nature of blockchain technology improves transparency and security, especially while using asset management outsourcing for tasks such as running trading processes or regulatory mechanisms. Hence, blockchain has been employed in the process of asset management outsourcing strategies for secure transaction processing and record-keeping.

Flexibility and scalability

Outsourcing models, which have come to epitomize the modern era, are something as flexible and scalable. Through this means, asset managers can therefore focus all their concentration on specific fields like data management or regulatory compliance, adjust accordingly, and hence source advanced technology without necessarily having to invest heavily in their own infrastructure.

Cost reduction

This is true, particularly for small and medium enterprises where there will be no need for internal investments in technology. Companies may therefore use asset management outsourcing for their technology requirements from externally-based providers who have modernised solutions or more sophisticated systems that will help them in getting new innovations.

 

Magistral’s Services for Asset Management Outsourcing

Magistral Consulting offers a full suite of asset management outsourcing services designed for the operations of asset management companies. Magistral Consulting provides a comprehensive suite of services designed to support asset managers in these operational functions. Magistral’s offerings include:

Investment Research and Analysis

Magistral helps firms track global and regional market trends to provide essential insights through industry reports. The firm also offers in-depth equity and fixed-income research, analyzing the risks and returns of various securities. Additionally, portfolio analysis allows organizations to enhance their effectiveness, assess themselves in relation to competitors, and handle risk/reward issues in a balanced manner.

Fund Administration and Reporting

Magistral ensures that the reporting of funds’ performance occurs promptly and accurately. More so, our professionals are versed in the preparation of other checklist compliance documents such as financial statements and investor reports which are fundamental in achieving local and international compliance standards.

Risk Management

The risk management services offered by Magistral enable asset managers to delegate risk monitoring and reporting functions and regularly assess portfolio risks. The company additionally provides support within the scope of operational risk management aimed at reducing risks linked to processes, systems, and people, thus building a stronger, more robust operational structure.

Middle and Back-Office Operations

Magistral enhances the efficiency of trade processing and settlement operations, taking care of trade execution, confirmation, and settlement processes. Corporate events such as payment of dividends, mergers, etc. are also handled so as to observe all the necessary procedures.

 

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

ESG compliance has become critical in regions like Europe, where asset managers outsource data collection and reporting to ensure they meet regulatory requirements and align with environmental and social governance standards.

Outsourcing allows small and medium firms to access advanced technologies and specialized services without the need for substantial internal investments, making them more competitive and efficient in operations.

Outsourcing partners specialized in regulatory reporting and compliance help asset managers adhere to complex and evolving regulations, such as anti-money laundering (AML) and environmental, social, and governance (ESG) reporting, reducing the risk of non-compliance penalties.

Introduction

These businesses focus on managing the daily operations and tactical supervision of real estate assets with the intention of maximizing investment returns and minimizing risks. The improvement of a property or portfolio’s worth and profitability is the main goal of real estate asset management. This entails a variety of tasks, including the purchase and sale of real estate, leasing, tenant interactions, financial analysis, budgeting, property administration, renovations, and overall portfolio improvement.

To create and implement a customized asset management strategy, real estate asset management companies frequently collaborate closely with investors or property owners. This approach takes into account the precise goals and objectives of the investor or property owner, the state of the market, and the particular qualities of the asset or portfolio.

Asset managers draw on their expertise and sector knowledge to evaluate market trends, spot possibilities for wealth creation, and make educated decisions on their client’s behalf. They keep a close eye on the assets’ performance, evaluate the state of the market, and put strategies into place to raise occupancy rates, rental revenue, and the overall value of the assets.

Real estate asset management companies offer thorough reporting, financial analysis, and regular property management tasks. They give frequent financial statements, keep clients updated on the status of their assets, and make suggestions for raising returns and lowering risks.

In general, real estate asset management companies offer their knowledge to efficiently manage and increase the value of real estate assets, acting as trusted partners for investors and property owners. In the fast-paced and cutthroat real estate market, their emphasis on strategic planning, operational execution, and financial optimization helps customers realize their investment goals.

Benefits of Real Estate Asset Management

Property owners, investors, and institutions can all profit from real estate asset management in several ways. These advantages show the value that real estate asset management provides to investors and property owners, allowing them to fulfill their investment objectives, maximize the performance of their properties, and reduce risks in the constantly changing real estate market. The following are some major advantages of managing real estate assets:

Benefits of Real Estate Asset Management

Benefits of Real Estate Asset Management

-Maximize Property Value

Real estate asset managers employ tactics to boost rental income, lower vacancies, and improve property performance to maximize the value of properties. They evaluate market conditions, seek out chances to add value and carry out strategies to optimize returns on investments.

-Experience and Sector Knowledge

The real estate market, developments, and optimal procedures are all deeply ingrained in the understanding of asset managers. They keep up with local market conditions, legislative changes, and business prospects, enabling them to make wise judgments and successfully manage risks.

-Risk Minimization

Asset managers recognize and control risk factors connected to real estate holdings. They create risk management plans, put insurance in place, and make sure all legal and regulatory requirements are met. This minimizes potential damages and protects the property owner’s investment.

-Financial Efficiency Evaluation

To evaluate the efficacy of real estate assets, asset managers conduct financial analysis and reporting. They offer information about cash flow, rental revenue, costs, and return on investment. Property owners can make informed judgments and improve financial performance with the help of this information.

-Portfolio Optimization and Diversification

Property owners can diversify and improve their real estate assets with the aid of asset managers. To create a balanced and high-performing portfolio, they monitor market conditions, appraise the portfolio’s composition, and suggest investment options.

-Resource and Time Conservation

Property owners may conserve time and money by giving experts the task of managing their assets. Property owners can concentrate on other issues since asset managers take care of the daily tasks, financial evaluation, tenant administration, and other challenging activities.

-Connections and Contacts

Asset managers have wide-ranging connections with brokers, suppliers, and other real estate industry experts. For the benefit of property owners, they use these networks to gain access to market knowledge, real estate prospects, and potential alliances.

Steps in Managing Real Estate Assets

It’s crucial to remember that these stages may change depending on the particular property, investor requirements, and market conditions. To provide the best results, real estate asset management is a dynamic, iterative process that needs constant review and modification. The general steps in managing real estate assets are as follows:

Steps in Managing Real Estate Assets

Steps in Managing Real Estate Assets

-Establishing Expectations: 

The first stage is to set up particular aspirations and targets for the real estate asset. Identifying the owner’s or investor’s financial goals, willingness to take risks, and anticipated return on investment is necessary for this.

-Asset Handling Approach:

Create a customized asset management plan based on the owner’s objectives and the property analysis. This plan defines the course of action to be followed to increase property value, optimize income, reduce empty spaces, and reduce risks.

-Property Analysis:

Analyze the property or portfolio thoroughly to comprehend its existing state, standing in the market, and the possibility of value amplification. This entails assessing elements like location, physical state, market demand, and possible rental income.

-Property Development and Preservation:

To maintain the property’s aesthetic appeal and physical condition, implement a preventative maintenance strategy. This covers routine checks, preventative maintenance, and required improvements to raise the property’s worth.

-Mitigate Risk:

Determine and reduce the property’s risks, including market turbulence, legal and regulatory compliance, and environmental problems. Put into practice risk management solutions, such as insurance coverage, backup plans, and legal compliance procedures.

-Performance Assessment:

Keep an eye on the asset’s performance in comparison to stated objectives and key performance indicators (KPIs). Monitoring the property’s performance entails examining financial records, occupancy rates, rental income, and other pertinent measures.

-Interaction and Reporting:

Give the investor or property owner frequent information and updates. Financial documents, performance reports, and suggestions for maximizing property value are included.

-Making Strategic Decisions:

Analyze market circumstances, industry developments, and prospects for value creation constantly. To optimize returns, choose wisely when buying, selling, refinancing, and making other strategic decisions about real estate.

Magistral Consulting’s Real Estate Asset Management Services

Magistral Consulting offers high-quality Real Estate Operations Outsourcing services. While all other asset class experiences ups and downs, real estate is the only one that is consistently profitable. Even during economic downturns, it retains investors’ trust. With the assurance of long-term income, it is convenient to hang onto the tangible quality of the asset class. It provides the finest profits and investment safety available today. It’s critical to comprehend a property’s potential in terms of returns to succeed in RE funds. Consistent returns are guaranteed year after year when the property is managed over a longer period.

Magistral helps you navigate the exciting world of Real Estate investments. Our services of Real Estate Operations outsourcing are helpful for Real Estate Private Equity, Real Estate Developers and Owners, REITs, and, Property Consultants and Brokers.

Here are the service categories we provide:

-Fund Raising and Exits

Identifying Limited Partners, Funding Strategy, Funding Environment Analysis, Pitch Deck, Investor Committee Presentations, Equity Waterfall Analysis, and, other similar assignments.

-Pre-Deal Support

Investment Memorandums, Financial Modeling, Real Estate Valuations and Returns, Market Analysis, Property Profiling, and, Data Management. Real Estate Due Diligence Is also performed under this bouquet of services.

-Deal Structuring

Real Estate Modeling, Rent Rolls Analysis, Rental Comps, Equity Waterfalls, Funding Requirement Analysis, and, Investor Committee Memorandums.

-Portfolio Management

Board Updates, Occupancy and Yield Trackers, Real Estate Yields, REIT Dividend Calculations, Tracking Real Estate Fund Indices, Rent Roll Analysis, Expenses & Budgets, Real Estate Fund Accounting, Fund Administration and Accounting, Fund Fee Structures, and, Portfolio Dashboards.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative: visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to  prabhash.choudhary@magistralconsulting.com

Introduction

Around the globe, there is a trillion-dollar business of investing in all sorts of assets like equity, both public and private, real estate, and upcoming assets like cryptocurrencies. Once the investment is made, the task on the part of the investor shifts to investment management. There are many activities of investment management that could be outsourced and that is what leads us to analyze the stream of investment management outsourcing. Investment management and hence investment management outsourcing takes all forms depending on the asset being invested in, and the prime business of the asset or investment manager.

Here we take a look at major activities of each type of investment manager or asset manager which could be effectively outsourced to save on costs and improve quality.

Who Should Outsource Investment Management and How?

Outsourced Investment Management

Outsourced Investment Management for different types of Asset Managers

Private Equity and Venture Capital firms

The underlying asset that a Private Equity or a Venture Capital firm invests in is equity. Sometimes it’s for stocks listed on exchanges but most of the time these are private investments, the target of which are start-ups are unlisted companies.

In the PE/VC value chain of investing, there are activities like Fundraising, Deal origination, Deal execution, and Portfolio Management. Quite a few activities in these departments are outsourceable. For fundraising, the activities like investor reach-out, investor profiling, CRMs, newsletters, white papers, and data management jobs could be effectively outsourced. Regarding, Deal origination, the deal pipeline management has a great potential of outsourcing along with initial due diligence. Deal execution processes like valuation and financial modeling are templatized and could be considered. Portfolio management has varied activities and outsourcing potential vary as per the nature of the business of the portfolio companies. Most activities related to Strategy and Marketing have great potential for outsourcing when it comes to Portfolio Management.

Hedge Funds

For the most common type of hedge fund out there, that is a long-short equity hedge fund, multiple activities should be considered for outsourcing. Equity Research is the foremost one. The research that is done for the investors is almost always best to be outsourced. Apart from Equity Research, Fund Administration and Fund Accounting are better done when outsourced. It makes sense from the cost and expertise point of view. Marketing activities almost always have great potential for offshoring.

Real Estate

Managing a real estate asset after the investment comprises standardized work-streams. Most of it relates to collecting data, analyzing it, making reports, and raising red flags if any. Accounting and administration along with research has a great potential for outsourcing

Investment Banks

Investment Banks are into all sorts of assets directly or for their clients. For the varying types of their work pallet, there is varying potential for outsourcing.  For investment banks, activities that are commonly outsourced are Equity Research, Security-based Investment Research, development of excel or other automated models, investment research for private investments, marketing, deal origination, and deal execution. In fact, 30-50% of all activities performed by an investment bank has a solid potential for outsourcing that may be explored

Asset Management Firms

These are for specialized asset managers like managers managing a portfolio of crypto or commodities. There is no one size fits all approach to outsourcing for these asset managers. As a thumb rule, everything related to technology like platform development, automation, website development, or software development can be outsourced. Also, anything that is of support function’s nature like Strategy or Marketing could be looked at.

Models of engagement with the outsourcing vendor

Once you have made your mind to explore outsourcing, the biggest concern is around the way an outsourced vendor or the service provider would work with you and your team. There are three established models of working while outsourcing. These are FTEs, Retainer, and Ad-hoc. Some progressive vendors like Magistral are signing up success-based contracts too.

Outsourcing Engagement Model

Investment Management Outsourcing Engagement Model

FTEs

FTE the most common engagement model for investment management outsourcing.

FTE stands for Full-Time Employee equivalent. It’s like a virtual employee who is operating from a different country. This virtual employee could be coordinated with, on email, video calls, WhatsApp, chats, or any other mode that is suitable to the client and is convenient as per time zone differences. It looks like a person is aligned with the client full time and he works seamlessly with the client. That is always the case, but the vendor, his processes, training, supervision, and culture play a big role in ensuring the continuity of services. A vendor enables the FTE to perform optimally by providing training and desired supervision. The vendor’s processes ensure that the client is insulated from the bad performance of FTE as the work is supervised by more senior resources. In case the individual decides to leave the organization, similarly, qualified and trained professionals are available on the bench for the replacement. That is the reason it makes sense to work with individuals through the service providers who may be an established name in their industry. Working directly through freelancing websites or hiring directly exposes clients to manage costs and risks, which is not the case while dealing with an established service provider.

This also is the cheapest model on per hour basis. But it is inflexible as there may be contractual obligations for a minimum period of support. This case is more prominent when resources are specialized in niche skills

Typical jobs that require FTE engagements are operational, where the offshored team works with the onsite team seamlessly. So, if a task is part of your ongoing investment management operations, mostly it will be outsourced on FTE-based engagement.

Retainer

You know there is a need for outsourcing tasks. At the same time, you think a full-time individual working on these jobs may be overkill. In these situations, where tasks just require some hours every month, the retainer model of engagement comes in handy. Say rather than hiring an FTE or a full-time virtual employee, you would only want 100 hours’ worth of tasks outsourced every month. A retainer is far more flexible than FTEs but costs higher on per hour cost basis. Typical jobs that are suitable for retainer-type outsourcing are newsletters, MIS, reports preparation, and other marketing-related tasks.

Ad-hoc Projects

As the name suggests the engagement is for one-time projects only. A client gives out the scope of the project. The service provider or the vendor provides a proposal that carries, scope of work, timelines, and commercials. The project kicks off after the client signs off the proposal and is paid after the delivery of the project. Almost any project that is strategic and is not expected to be repeated on an ongoing basis is an ideal candidate for ad-hoc based outsourcing. Also, it’s an ideal mode, if you would want to test the services of a vendor before signing a longer-term contract. It is the most flexible outsourcing arrangement as projects may start or end at your convenience, but at the same time, it is costliest in terms of cost per hour basis.

Success Based

Most traditional service providers shy from signing a success-based engagement. The fear stems from the trust deficit, performance fears, and the complications of defining a success scenario. Magistral signs success-based engagements with clients, with whom it has existing relationships. Existing relationships take the risks related to trust deficit and performance. A mutually agreed “success” scenario could also be defined in those situations. The tasks that are outsourced under these arrangements usually relate to fundraising, deal sourcing, and meetings’ set up

Magistral has helped more than 100 clients in outsourcing and offshoring multiple activities related to the Investment Management process. To start a conversation drop a line here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.