Review of the Outsource Market

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Review of the Outsource Market Presentation
by Stephen Pinner FSI Philip Painter
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Review of 2007 (Wealth Management)

• Many Outsource providers spent most of 2007
  retaining current business
• Significant demand but limited availability
• New provider joined the market space SEI Europe
  first client being HSBC Wealth Managers
• Major implementation difficulties
• Main winners in 2007 were the system providers,
• Majority of Wealth Managers who reviewed in 2007
  either replaced systems or in-sourced

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Review of 2007 (Institutional)

• Very few new deals in 2007
• Majority of high profile deals completed in 2007
  originated in 2005/6
• - RBC Old Mutual
• - BNP Aberdeen Asset
  Management
• - JPM Threadneedle
• - Soc Gen Pioneer / Unicredit
• Reason for lack of outsource activity
• - Consolidation and integration of
  previous deal
• - Focused on building functionality
  for alternative investments
• 2007 saw the end to the open cheque book sales
  process
• FSA embraced outsourcing in 2007 by outsourcing
  IT support services to Fujitsu

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Review of 2007 (Off-shoring)

• Move by smaller companies with turnover less that
  5 million to outsource functions offshore
• Market trend is to move full operational centres
  off-shore eg BNY Mellon and JP Morgan
• Emerging trend to off-shore to near shore
  locations Russia, the Czech Republic, Poland
• In 2007 UBS moved 750 jobs to Poland

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Review of 2007 ( MiFID)

• It was felt that MiFID would stimulate the
  outsource market place
• - Increased need to collect, consolidate and
  publish information
• - Need for extended data storage requirements
• Greater emphasis on understanding the roles and
  responsibilities on the outsource providers
• Ensuring the process of due diligence is
  undertaken and documented
• In reality we have seen little or no impact from
  MiFID on the outsource market place

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Predictions for 2008 (Wealth Management)

• Emergence of new outsource providers in the
  Private and Wealth Management space
• Wealth Managers expectations have increased and
  they are looking for more than a one size fits
  all outsource
• We see a move to component outsource
• Contracts and Settlement
• Technology and IT
• Accounting and valuation
  services

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Predictions for 2008 (Institutional)

• Volatile markets will force Institutions to
  revisit fixed cost
• Large custodians will return to the market with
  updated platforms which can service alternative
  investments as well as long only assets
• The large custodians are looking to move further
  up the value chain towards
• - Middle office and trade
  confirmation
• - Performance Measurement /
  benchmarking
• We also see a move from the large providers into
  the outsource and administration of Hedge Funds

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Predictions for 2008 (offshore)

• Continuing trend for more companies to use
  off-shore locations
• Recent survey by Deloittes estimates 180,000 UK
  financial service roles will be off shored to low
  cost centres by 2010
• The maturity of more near shore locations
• Egypt
• Turkey
• Hungary
• Russia

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Outsource Case Study Lessons Learnt

• Experienced difficulties managing services in
  more remote location
• Issues caused by language and cultural
  differences
• Issues caused by time differences
• Poor management of the overall ongoing
  relationship
• Survey carried out in 2007 stated that 1 in 4
  companies would have paid more for a higher
  quality outsource provider

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Outsource Case studyWhat could have been done
Better?

• Make sure the SLAs are better defined and
  eliminate ambiguity and guesswork
• Better financial bonus/penalty framework to
  ensure closer alignment of service and delivery
• More robust governance structure to deal with
  issues as they arise
• More experienced staff to manage the relationship
  both internally at the client and at the
  outsource provider

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• Questions