Friday, May 25, 2007

One in Three Investment Management Firms Will Increase Outsourcing to Third Party Service Providers


As the investment management industry uses more complex financial instruments and faces increasing pressure to improve performance, cut costs and comply with regulatory requirements, more firms are turning to third-party service providers for administrative, back- and middle-office functions. Approximately one in three (31 percent) investment management firms said they plan to increase their outsourcing arrangements with third-party providers over the next two years, according to a survey of more than 150 finance executives from mutual funds, hedge funds and other asset management firms, who attended PricewaterhouseCoopers Investment Management Industry forums in Boston and New York over the past week.

Forty percent of Investment Management finance executives said their primary reason to expand outsourcing is so that the firm can focus on core competencies. One in three (31%) outsource as a way to improve the quality of functions their finance teams don't have adequate time or resources to handle on their own. Only 29 percent outsource primarily as a way to cut costs.

Outsourcing is one of ten top issues the investment management industry must grapple with in the year ahead, which are driving increased focus on internal controls, including oversight of third-party service arrangements, according to PricewaterhouseCoopers. The firm has issued a report entitled, "Looking Ahead: Strengthening the Structural Foundation of the U.S. Investment Management Industry," which calls on the industry to strengthen internal controls in response to increasing challenges.

"During this time of change and uncertainty, it is crucial for the investment management industry to maintain investor confidence," said Benjamin. "By managing potential conflicts, properly overseeing service providers and addressing the risks of complex investment instruments, the industry can meet its operational challenges while preserving investors' trust. Deeds, not words, will ensure investors' continued faith in the U.S. investment management industry."

"Looking Ahead: Strengthening the Structural Foundation of the U.S. Investment Management Industry" lays out the challenges and highest pressure issues facing the industry. The report also addresses in greater detail five areas of internal control for mutual funds to strengthen their structural foundation, identifies the ramifications for the industry and suggests best practices to address industry challenges.