A number of factors are driving funds and asset managers to look for more effective solutions to administration. Changes in legislation, new product types, and company mergers and acquisitions that result in the need to rationalise multiple funds can make demands on older software packages that often do not have the flexibility to cope. Nor can they necessarily handle internet-based applications for delivering information, updating records and so on that are becoming an essential part of today’s client service. Then there is the fall in the markets, which is making firms look more closely at costs, to see if they can make savings by outsourcing part or all of their administration.
“Nowadays, organisations are looking for real-time systems with straight-through processing STP,” says Hugh Byrne, senior vice president for Chicago-based Sungard Investment Management Systems. Older fund accounting and administration systems generally ran on batch cycles, which is inadequate for the pace of today’s business. STP is the automated handling and processing of investment transactions and other information all the way through to final reporting, from once-only input of data, thereby improving efficiency and reducing errors.
To achieve STP can mean integrating with other in-house systems, or with external systems, such as those of brokers, custodians and depositories, and systems must have the open architecture to do this.
Other features that institutions are looking for include the ability to handle a broad range of instruments, easy access to data, and support for global operations. “Global investment managers not only invest in different markets, but also have fund managers and clients in different markets,” says Byrne. SunGard’s Invest One system is used in 21 countries, and is adapted to support the regulatory reporting and languages of the local markets. At the same time, a global firm can configure the system with a centralised accounting engine and database, into which all remote locations can connect. “So there is only one securities master, and the institution is only maintaining one system, while portfolios can be managed across different time zones around the world.”
Global Investment Systems (GIS), based in New Jersey and Dublin, supplies a mutual fund accounting and administration package, MFACT, which is used in 19 countries. Barry McConville, global director of sales and marketing, says that one of the major benefits of the system is its flexibility. “Although we have it installed in many different locations, it is mostly used without any modification,” he says. While the product supports the local regulatory requirements, “there is a right way and a wrong way to do accounting”, so there are a limited number of ways of using the system, he says.
GIS also supplies a transfer agency and shareholder recordkeeping system for retail and institutional investment funds called MSHARE. Half of GIS’s business is supplying its systems to organisations that do their own accounting for their own investment funds, such as Pioneer in Boston. The other half is to large third-party service providers, such as Fortis Fund Services, Daiwa Europe and Citibank.
Another requirement that institutions are looking for nowadays is support for the web. As in other sectors, the internet can transform traditional ways of doing business. Although it can be expensive to develop the necessary infrastructure, once it is in place it can offer many benefits, including reduced costs of doing business, says Paul Roberts, deputy managing director at International Financial Data Services, a joint venture between global investment services giant State Street and investment management software specialist DST Systems, based in Essex, in the UK. For example, where a firm creates internet access for its distributors and/or investors, they can become self-servicing, using the internet access to the firm’s systems to create new accounts, change addresses, etc, for themselves. A firm can also use the internet to deliver information and other value-added services, such as distributing data to nominees and agents to assist in reconciliations.
GIS is in the process of completely web-enabling its applications, although so far there is not a big demand from clients for this, says McConville.
Today’s market environment means that firms are looking to focus on their core competencies, and many firms have realised that operations and administration, either whole or in part, are outside of their core activities, says Roberts. “A firm might decide that it is competent at dealing with its distributors and direct investors, but not in setting up accounts, or inputting deals, or handling reconciliations, and will want to outsource these things,” he says. Firms are starting to examine the true costs of performing these kinds of functions, and assessing whether they really have the economies of scale and the expertise to justify doing them in-house.

Another factor is that the world is moving faster than ever before, with change accelerating in technology, regulation, market practice and many other areas. The internet is transforming the way investment and finance operate. The UK government has put forward proposals for change in its recently published Pickering and Sandler reports, and UK firms face the prospect of the introduction of the euro. These kinds of changes can require major and costly enhancements to computer systems. One way of minimising this burden is to use a service provider, where the costs are spread across many users of the service, and where the specialist provider has the headache of upgrading its system.
Firms now have a choice of how they approach outsourcing. They can maintain responsibility for administration, but hire a third-party to supply and operate the technology for the various tasks. SunGard provides such a service, where it runs its software on behalf of clients in its data centres. SunGard is able to benefit from its parent company’s data processing and global disaster recovery facilities to provide security for its outsourcing service. Or firms can hand over all or part of their administration to specialist third-party services suppliers, such as IFDS, Belgium-based Fortis Fund Services or Edinburgh-based WM Company – the latter two of which use the Invest One system.
There are a number of key factors that must be addressed if an outsourcing service is to satisfy client requirements, says Roberts. First, clients must feel that they are still in control. This means allowing them to choose which functions they wish to outsource, and which they wish to keep in-house. “It shouldn’t be an all-or-nothing process,” says Roberts.
Firms must also have access to their data. “It’s their data, and they must be able to view it,” he says. And firms must be able to customise the system to suit their preferences in terms of style of statements, user screens, management reports and so on.
Outsourcing is no longer confined to new or smaller firms. In June, London-based Schroders announced that it was outsourcing the administration of its UK institutional and retail unit trust funds to IFDS. Meanwhile, recent start-up New Star Asset Management has outsourced most of its administration functions to IFDS, including its client services call centre. Firms of all sizes are now looking at the outsourcing options, says Roberts.
One other factor that is becoming more important following the decline in fortunes of the technology sector, is the financial stability of the supplier, says Byrne. “A few years ago, financial institutions would take bets with smaller suppliers, but now they are looking for a strong technology partner that can invest in its products, and keep them up to date with new instruments, new regulations and so on.” This favours the established players, especially those with the backing of strong parent.
Other companies that supply fund accounting and administration systems and services include Cogent, now part of BNP Paribas, New York-based Bisys, San Francisco-based Advent Software, Connecticut-based SS&C Technologies, and New-York-based Thomson Financial.