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Impact Investing

IPE special report May 2018

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More outsourcing among asset managers on the cards

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The first of July was “change of shirts day” for the 120 ABN AMRO Asset Management(AAAM) back and middle office staff who moved to State Street’s Amsterdam operation, as part of one of the first major outsourcing deals in continental Europe mainland. “This was in fact signed just some weeks ahead the AXA deal we also won,” says Rod Ringrow, managing director of investor services in the Netherlands for State Street.
“The change over took place smoothly and has gone very well so far,” he adds. The transaction is to take effect in a number of phases over two and half years. “This initial stage includes investment accounting, trade support and management, but the custody remains with the current incumbent.”
There is a phased approach to convert initially the Netherlands and Luxembourg asets, and then London and Stockholm. For Luxembourg the fund accounting will be done by State Street’s operations in the Grand Duchy, with the middle office going to Amsterdam. “While a little bit of the London middle office will be done there, the rest will be fed into Amsterdam.” The whole change over is scheduled for 12-18 months and could involve some further but small staff lift-outs. The London and Stockholm changeover will follow later.
AAAM took the step of moving away from the
management of the back and middle office functions in order to concentrate on the asset management operations. “We took the decision in order to focus more on core activities,” says Jochem van de Laarschot, ABN AMRO group spokesman. “We do not think that to provide our clients with administrative services is where our focus should be.”
The outsourced areas include trade support and settlement, fund accounting, position-keeping and performance measurement and attribution. “By outsourcing these, we can concentrate on managing the assets.” In all some E75bn of the E166bn assets managed by AAAM in 20 locations worldwide are covered by the agreement.
The choice of outsourcing partner was a process over a number of months in which the major players participate. “State Street was chosen for a number of reasons. Their pitch was the best one in terms of quality of services to clients and in terms of the price. But we have had good experience with them in the past.”
“This is a landmark deal in a European context, as it is the first multi-jurisdictional transaction, with a leader in the field. We are delighted to be able to partner them,” says Ringrow. “But it has excited a lot of interest within the Dutch market.”
There have been moves to outsourcing in the past among Dutch banks, such as by Robeco and there has been the link-up with ING and the Bank of New York. But in particular, there has been the question of why AAAM did not decide to go with ABN Amro Mellon, who would have been thought to have been the natural partner because of the banks’ joint venture.
Van de Laarschot explains: “At the very beginning we did of course look at the possibility of involving ABN AMRO Mellon in the process. But in consultation with them we came to the conclusion that they do not supply these type of services, so they were not a candidate to become involved in the bidding.”
It puts a real challenge in front of other Dutch asset managers, particularly the smaller ones, as to why they should continue handling everything internally. He says: “The Dutch industry will be closely following moves like these, particularly as our bank has over the last five years developed a track record in restructuring and reorganising. We are seen as leaders in taking such steps early and we wouldn’t be surprised to see our competitors following suit.”
As Ringrow puts it: “The question is if the bigger people are outsourcing, what should others be doing?”
State Street also believes it poses a question for pension funds. “You have a large number of pension funds who have over the years decided to offer outsourced services including asset management – some more successfully than others, they are now looking at what they can do playing in this sphere. This deal may be the catalyst for change in a number of fields.”
In addition to servicing AAAM, the expanding Amsterdam base is to become the hub for State Street’s Dutch activities. The ambition is that this hub will service an increasing portion of the Dutch market in both the asset management and the pensions sector. The economic logic in the Dutch pensions market could mean be moves to further consolidations, he reckons.
The Dutch operation is to be built up from the initial 120 staff to over 135 in the next 12-18 months as existing and new clients are added. “It is putting Amsterdam on the map for us fairly and squarely.”
While a major asset management outsourcing requires that the provider is ‘custodian neutral’, as the provider will be dealing with dozens of different custodians across world, this transaction shows that it is certainly not a requirement that the custody relationship also goes to the insourcer. Logically, AAAM’s custody stayed with the ABN AMRO’s joint venture, nonetheless, Ringrow still wryly comments: “At State Street, we are ever hopeful.”
State Street accepts that it is “busy” with the outsourcing deals going through, but rejects the idea that it is “too busy”. “Our aim is to do a certain number of deals and make sure we do them well.” Reputation is everything and depends on these being done successfully, says Ringrow. “We will execute above and beyond what is expected of us.”

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