In the United States, asset servicing firms have great prospects. Among the notable hedge fund trends is the steady increase of outsourcing practices among fund managers over the past few years, as they grapple with developments in the industry.
Driving this surge in the demand for asset services are the following factors:
Need to comply with regulatory requirements. In the face of more stringent regulatory demands, hedge fund firms are pressed to undertake improvements in their processes and their reporting capabilities, to withstand the scrutiny of regulatory bodies. Reporting is a tedious, day-to-day affair that requires proper data management and warehousing, and sometimes, they simply cannot afford deploying more people and devoting more of their budget for these functions. Outsourcing partners come in handy in this scenario, offering their expertise, manpower, and technology towards the swift accomplishment of the task.
Emergence of new markets. As the investments and securities sector becomes more and more globalized, the Asia-Pacific and Europe have emerged as the new markets to conquer for American hedge funds. This also means a host of new jurisdictional policies to navigate, some more strict than those in the United States. At the same time, this poses challenges in terms of monitoring one’s performance across asset classes, and across various markets, to allow for quick decision-making from wherever in the world, as well as wise allocation of resources. The best asset servicing firms have mastered the rules for different markets, and can capably handle the demands of entering new domains.
Interest in offering new products. As today’s hedge funds strive to provide more product options to their client-investors, they need to be able to claim the support of third-party firms as they expand their offerings. More products means more middle and back-office needs, more accounting, tax reporting, data warehousing, risk modeling, fund administration, and account reconciliation requirements. As they invite investors to lend their funds towards these new products, having a first-class asset servicing firm as an outsourcing partner can be a major point for their sales pitch.
In the end, asset servicing firms are a helpful addition to the array of tools that fund managers can use to adapt with hedge fund trends. As they take on the grueling middle and back-office operations, they let hedge funds focus on core functions, achieve growth for the assets under their management, and leave client-investors satisfied and willing to take more chances.
