Author: Maha Khan Phillips
In 1992, fund managers were still in the early days of their outsourcing journeys. Andrew Hilton, then Managing Director of the Evening Standard, argued that fund managers should focus on their core businesses and cut costs from their operational models, in order to survive in an increasingly competitive marketplace.
We live in a world where costs and operational complexities are a significant burden on investment businesses. Clearly, this is an issue that the industry has always struggled with, if Andrew Hilton’s September 1992 article Getting Back to Basics, is anything to go by.
Hilton highlighted the challenges around asset management profitability, pointing to a survey that revealed that increasing funds under management would not necessarily strengthen the profitability of asset management models. Neither would improving investment performance. The real lesson for fund managers was to understand what their core businesses were, what their costs were, and how to control both, he said. He made the case for more outsourcing, suggesting that it was one way for asset managers to grapple with costs.
Six years previously, the London Stock Exchange had had it’s ‘Big Bang’ and, as Hilton highlighted, ‘it was obvious to all that the past was being swept away and a new and uncertain and highly competitive world was coming in, even if many of the players had no clear idea what the game was’. Fund managers needed new ways of working in the 1990s, with the industry no longer a ‘cosy backwater’, he said.
Today, outsourcing is a significant part of investment operating models, not only for fund managers but also for asset owners, sovereign wealth funds and other asset allocators. And outsourcing has increased in breadth and sophistication, with investment businesses having the ability to outsource not only their back and middle offices, but components of their front offices as well.
Hilton quoted from a foreword written by Institutional Fund Manager’s Association chairman Paddy Linaker, who said: ‘the priority of some fund managers in the past has been to concentrate on investment performance for their clients in the belief that profitability of the business will naturally follow. Those days are in the past, and it is now recognised that though investment performance is crucial in the long term for attracting and retaining clients, we must each manage our operations efficiently in order to develop our business’.
Arguably, Linaker’s words remain as relevant today as they did in 1992.