Outsourcing Can Help European Asset Managers—Report

Stephen Harris

4 July 2005

Outsourcing back- and middle-office activities adds over 10 per cent to the shareholder value of European asset managers, according to a study conducted by independent strategic adviser, Oxford Metrica, a research consultancy, commissioned by The Bank of New York. The study analysed the movements in the share prices of 21 European fund management firms, with combined assets of $2.1 trillion, following the announcement of an outsourcing deal. It found that the share price increased as a result of investor expectation of improved manager performance. This positive impact appears to be unaffected by the type of outsourcing model adopted or the size of the deal. The findings also showed that although costs may be contained in an outsourcing project, direct cost reduction is not the main driver of value. The major motivator cited behind a successful outsourcing deal was the desire and ability of asset managers to demonstrate understanding of costs and their drivers, and to distinguish between core and non-core activities. The study found that by outsourcing genuinely non-core investment activities, managers have more time to focus on key business issues: investment performance, investment strategy and asset allocation. The characteristics outsourcing service providers considered most important were long-term commitment and stability. The majority of asset managers involved in the research believe that their operational risk would ultimately reduce from outsourcing.