Outsourcing expectations
25 Jan 2023
Anup Kumar speaks to Lucy Carter about the current state of managed services and why smaller funds do not always have the capital to build complex operational structures
Image: wacomka/stock.adobe.com
Anup Kumar has been in the financial services industry for almost 40 years, boasting a string of senior roles throughout his career. He currently serves as executive vice president and head of global services at Linedata, where he is responsible for the operations of the front, middle and back offices alongside the company’s technology services. As such, Kumar has been monitoring the rise of managed service over recent years, a phenomenon that hasn’t been limited to larger firms.
“Smaller funds really do not have the financial capacity to build a [complex] operational infrastructure,” Kumar explains. The “technologies, tools and talent” required for such an operation, along with the proportional expenses, are often only accessible to more established market players. Outsourcing can be an effective way to operationalise more elaborate systems at a more appealing price point, allowing firms to compete with industry giants. Whether a fixed fee or variable cost model is used, the savings can be substantial.
Once the strategy is established, managed services still have an important role to play, Kumar expounds. They can speed up time-to-market and, particularly for smaller firms, can make it easier to increase sales. If they are working with a provider “which has credibility in the industry and the operational infrastructure to [fulfil the investment strategy],” then they are more likely to be trusted by new clients than if they create in-house solutions.
“From an industry perspective, it is both a defensive strategy and an offensive strategy,” Kumar says of managed services. Firms can protect themselves from market turbulence by varying their expense structures, and can take more innovative risks without having to worry about operational aspects or gaining in-house specialist talent.
And what will the future of outsourcing look like? “The long-term is too hard to predict,” Kumar says, “but in the short-term, we will see a couple of trends.” One of these will be a continued increase in the uptake of managed services. This will occur across the investment value chain, he predicts, with the outsourcing of value-added activities leading to “progression in terms of the value chain.”
Additionally, Kumar foresees the “node” of the managed services model being removed. “In the current climate you need to innovate and optimise your expense structure to survive,” he comments.
Speaking of innovation and looking a little further ahead, Kumar expects to see artificial intelligence, machine learning, automation and outsourced analytics become key components of the managed services industry. Kumar predicts that progressive providers “will start to introduce digital platforms that are hosted on the cloud and have modular constructs,” giving managers the option to outsource more specific areas of their business. He also expects to see a “modernisation of the underlying platform,” with services accessed through open architecture and application programme interfaces. This will make managed services increasingly easy to buy into as the demand for them continues to grow.
“What I am seeing right now is the prevalence of digital transformation as a strategy,” Kumar notes. He argues that this has been the most influential development of recent years that has made managed services more accessible and attractive, with client experience, operational infrastructure and data management the most significant areas that this has changed.
“Digital transformation is driving managed services to the next level,” Kumar attests. Client interactions are becoming ‘seamless’, with innovative service portals and reimagined customer journeys helping companies meet rising client expectations.
Operational infrastructure changes require further consideration, he warns. There is a growing interest in automation, with artificial intelligence and machine learning becoming a widespread component of companies’ solutions. While this can be greatly beneficial, with the potential for infrastructure weight to be reduced through use of the cloud, there are also cybersecurity risks that need to be addressed.
Increased safety may benefit from growing data availability and developments in data science, which have allowed for managed services providers, who are “very focused on thinking about operational analytics,” to “predict and preempt what might go wrong” in operations. This can save firms time, money and stress, and provides clients with a more efficient service.
Looking at the financial services industry more broadly, Kumar remarks that “we are beginning to see some degree of slowness” as a result of market turbulence from the economic uncertainty and geopolitical tensions the world has faced in recent years.
At a macro level, he says, there is concern around maintaining cost structure. 2022 saw significant outflows for European funds, in addition to considerable increases in inflation rates. “Due to this, we do expect that fund managers will be a lot more cautious about how they deal with their operating model. We will see more outsourcing happen, I am sure.”
Kumar advises fund managers to be “more efficient in terms of operations and expense structure” to weather such conditions and make the best use they can of managed services offerings.Regulatory concerns have been a hot topic in recent months, with an influx of new regulations coming into play all at once. “There is always some degree of confusion when you have new regulations,” Kumar says, but urges that “there is a big need for managers to adopt [them].”
In this area, too, he recommends the use of managed services as a solution: “you are still responsible for implementation of regulations, but all the plumbing and all of the operational aspects are managed by the provider.” Although compliance programmes will still need to be dealt with in-house, the majority of the workload is relieved.
Regulations are always evolving, and the pressure on companies to comply with an ever-growing list of rules and requirements “takes investment, time and effort,” Kumar comments. “A managed services construct has the service provider do all of those updates so you don’t have to.”
The increased demands on the industry all point towards managed services as a solution, something that Kumar’s predictions support. Particularly following widespread market turbulence and instability over recent years, it seems inevitable that outsourcing will be the only logical way forward for many.
“Smaller funds really do not have the financial capacity to build a [complex] operational infrastructure,” Kumar explains. The “technologies, tools and talent” required for such an operation, along with the proportional expenses, are often only accessible to more established market players. Outsourcing can be an effective way to operationalise more elaborate systems at a more appealing price point, allowing firms to compete with industry giants. Whether a fixed fee or variable cost model is used, the savings can be substantial.
Once the strategy is established, managed services still have an important role to play, Kumar expounds. They can speed up time-to-market and, particularly for smaller firms, can make it easier to increase sales. If they are working with a provider “which has credibility in the industry and the operational infrastructure to [fulfil the investment strategy],” then they are more likely to be trusted by new clients than if they create in-house solutions.
“From an industry perspective, it is both a defensive strategy and an offensive strategy,” Kumar says of managed services. Firms can protect themselves from market turbulence by varying their expense structures, and can take more innovative risks without having to worry about operational aspects or gaining in-house specialist talent.
And what will the future of outsourcing look like? “The long-term is too hard to predict,” Kumar says, “but in the short-term, we will see a couple of trends.” One of these will be a continued increase in the uptake of managed services. This will occur across the investment value chain, he predicts, with the outsourcing of value-added activities leading to “progression in terms of the value chain.”
Additionally, Kumar foresees the “node” of the managed services model being removed. “In the current climate you need to innovate and optimise your expense structure to survive,” he comments.
Speaking of innovation and looking a little further ahead, Kumar expects to see artificial intelligence, machine learning, automation and outsourced analytics become key components of the managed services industry. Kumar predicts that progressive providers “will start to introduce digital platforms that are hosted on the cloud and have modular constructs,” giving managers the option to outsource more specific areas of their business. He also expects to see a “modernisation of the underlying platform,” with services accessed through open architecture and application programme interfaces. This will make managed services increasingly easy to buy into as the demand for them continues to grow.
“What I am seeing right now is the prevalence of digital transformation as a strategy,” Kumar notes. He argues that this has been the most influential development of recent years that has made managed services more accessible and attractive, with client experience, operational infrastructure and data management the most significant areas that this has changed.
“Digital transformation is driving managed services to the next level,” Kumar attests. Client interactions are becoming ‘seamless’, with innovative service portals and reimagined customer journeys helping companies meet rising client expectations.
Operational infrastructure changes require further consideration, he warns. There is a growing interest in automation, with artificial intelligence and machine learning becoming a widespread component of companies’ solutions. While this can be greatly beneficial, with the potential for infrastructure weight to be reduced through use of the cloud, there are also cybersecurity risks that need to be addressed.
Increased safety may benefit from growing data availability and developments in data science, which have allowed for managed services providers, who are “very focused on thinking about operational analytics,” to “predict and preempt what might go wrong” in operations. This can save firms time, money and stress, and provides clients with a more efficient service.
Looking at the financial services industry more broadly, Kumar remarks that “we are beginning to see some degree of slowness” as a result of market turbulence from the economic uncertainty and geopolitical tensions the world has faced in recent years.
At a macro level, he says, there is concern around maintaining cost structure. 2022 saw significant outflows for European funds, in addition to considerable increases in inflation rates. “Due to this, we do expect that fund managers will be a lot more cautious about how they deal with their operating model. We will see more outsourcing happen, I am sure.”
Kumar advises fund managers to be “more efficient in terms of operations and expense structure” to weather such conditions and make the best use they can of managed services offerings.Regulatory concerns have been a hot topic in recent months, with an influx of new regulations coming into play all at once. “There is always some degree of confusion when you have new regulations,” Kumar says, but urges that “there is a big need for managers to adopt [them].”
In this area, too, he recommends the use of managed services as a solution: “you are still responsible for implementation of regulations, but all the plumbing and all of the operational aspects are managed by the provider.” Although compliance programmes will still need to be dealt with in-house, the majority of the workload is relieved.
Regulations are always evolving, and the pressure on companies to comply with an ever-growing list of rules and requirements “takes investment, time and effort,” Kumar comments. “A managed services construct has the service provider do all of those updates so you don’t have to.”
The increased demands on the industry all point towards managed services as a solution, something that Kumar’s predictions support. Particularly following widespread market turbulence and instability over recent years, it seems inevitable that outsourcing will be the only logical way forward for many.
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