Over the last decade we have seen a rise in the number of investment funds as pension freedoms and demand for new savings products boost institutional and retail demand.
At the same time, in reaction to the global financial crisis of 2008, we have seen a surge in regulation and compliance requirements, increasing the complexity and costs of doing business for financial services firms.
This is boosting demand for specialist outsourcing firms that can address critical functions for asset managers and investment funds, such as fund governance, risk management and compliance. Firms recognise the benefit of accessing such expertise without incurring the significant headcount increases.
As a consequence, we have seen the growth of specialist firms providing this expertise on an outsourced basis. These providers allow asset managers to focus on their core activity and are particularly important for smaller, boutique asset managers that lack the economies of scale to develop this expertise internally. As demand for these services continues to increase, we ask: how are these specialist service providers scaling successfully and what can entrepreneurs and management teams do to make their businesses most attractive for investment?
Scaling through technology
Technology enhancements allow specialist service providers to boost productivity, harness analytics and improve oversight and control. ECI portfolio company, KB Associates (“KBA”), is a leading provider of specialist services to the global asset management industry. As demand for its services has increased, KBA has invested heavily in technology both to allow it to support the increasingly complex fund products and to increase efficiency by replacing labour intensive paper-based activities with automated processes. In addition, the systems reduce the operational risk within the business and provide KBA’s senior management team with improved visibility of and control of the firm’s activities. It also allows KBA to bring on new clients more quickly than would otherwise be the case, a critical advantage for a fast-growing business!
With 45% of financial services firms expecting to invest in AI or machine learning over the next 12 months, according to ECI’s 2020 Growth Index, it is clear that automation and machine learning is anticipated to be a big facilitator of growth.
Sourcing talent
Despite the importance of technology, specialist service providers remain people-focused businesses where professional knowledge and strong personal relationships are key to success.
Firms providing outsourced solutions perform functions critical to the success of asset managers. This requires these service providers to have deep technical expertise and to earn the absolute trust of the asset managers they support. Clients expect partners that understand their needs and provide consistent, high quality information and advice on a timely basis.
The calibre of professional staff that firms can attract and retain is therefore of paramount importance.
Technology frees talent
While professional expertise is the critical factor technology also has an important role to play in freeing highly qualified (and expensive) staff from the performance of routine analytical/computational tasks. This ensures staff have time to focus on supporting clients in addressing more complex matters. These more complex engagements with clients are key to the development of real credibility and trust.
Not only does technology free staff to focus on client relationships it ensures that they have roles which are broad, require ongoing professional development and provide the type of personal and professional challenge high achieving staff relish. Technology facilitates the creation of roles which are appealing allowing firms to attract and retain the best talent.
Outsourcing firms that have used technology to effectively scale and free up people to drive better relationships with clients are highly attractive. The attributes that make businesses compelling to their existing and potential customers, are the same that we look for in investments. Our 40+ years of experience in supporting the growth of both people-based and tech-enabled services businesses has shown us the value of firms who can scale by delivering both together and we are always keen to meet founders and management teams that share this vision.
If you would like to talk to someone about scaling your fund services business, please get in touch with fiona.evans@ecipartners.com.
