Advantages of outsourcing fund administration
Posted: Mar 29, 2017
Fund administration constitutes a critical part of any asset management company’s operation. The past years, however, have witnessed this function being delegated to third party service providers.
This article discusses the advantages that this outsourcing trend brings to today’s breed of fund managers:
Significant cost savings. Fund administration is a set of various functions. Among the tasks it involves are the preparation of shareholder reports and SEC filing, financial accounting, accounts reconciliation, fund expense and dividend payments, securities pricing, and calculation of net asset value (NAV), interests, purchases, sales, and distributions. By outsourcing, fund management companies will be able to control how much they spend on these functions, by providing a limited budget to their chosen service providers.
Flexible human resources and tech development arrangements. Through asset servicing firms, companies are able to access a pool of talent without having to spend for their recruitment and training. Moreover, they can utilize custom technology solutions without shelling out for procurement, upkeep, and upgrades. This is especially helpful in the context of seasonal requirements for particular skills and services. An asset management company may not always need experienced tax accountants in its employ, for example. But partnering with an asset servicing firm will allow it to access expertise only when the need arises.
Focus on front office, but continued precision behind the scenes. All these repetitive tasks under fund administration could take away from the precious attention that could have been devoted to core functions. But at the same time, fund managers would want the middle and back offices handled with precision and care, since a successful front office also depends on their good performance. Outsourcing these behind-the-scenes function helps ensure focus on front office, while maintaining high quality and efficient middle and back office operations.
Risk reduction. Risk is inherent in many stages of an asset management firm’s operation. It faces the risk of loss or damage for every technology or facility it maintains for its procedures. It faces the risk of human error in accounting or report preparation. It faces the risk of its investment in human resource not paying off immediately because of inadequate skill or unfortunate learning curve. Through outsourcing fund administration, the company also outsources many of the risks that it is supposed to deal with.
With the right partner in fund administration, asset management firms can reap all these advantages from outsourcing, and so much more.
Leo Aranas is an online writer and blogger.