Aegon brings in tech big guns

In the latest deal in the outsourcing field, Edinburgh-headquartered Aegon Asset Management is cementing its deal with Citigroup, which will now service assets worth £40bn (E59bn). Andrew Fleming, managing director and chief investment officer at Aegon Asset Management says: “The primary reasons for doing the deal, or for looking for third-party outsourcing are a superior technology platform and services as well as the possibility to focus more of the company’s energy on our competency, which is managing money, providing investment solutions and, obviously, servicing clients.” However, the deal, which was signed a year ago, is still in an interim stage. Although 75 Aegon employees were transferred to the supplier from the start, the actual migration to the Citigroup platform is scheduled to happen later this year. The question is whether end users will see any of the benefits of this fund servicing outsourcing. “Our clients, institutions and retail investors, will get improved, more efficient and faster services in time,” says Mr Fleming. However, probing further, it is clear that the enhanced services that Aegon may deliver to its clients are not the primary driver of the outsourcing deal. The company has £42bn of assets under management, of which £2bn are in retail funds.

Rigby: suppliers need to keep track

The complexity of administration, fuelled by open architecture, is driving the outsourcing trend, according to Mr Fleming. “The pace of change is accelerating, the technology life-cycle is getting faster and you are having to make bigger investments, you need bigger scale to justify the cost of those constant upgrades,” he says. He adds that their own platform was working “perfectly well” and their decision to outsource was strategic, as they did not have the scale to justify investment in leading edge technology. In the last few years, the UK has been home to a handful of major, total outsourcing deals, struck between asset management companies and custodians. The deals involved the provision of middle and back office work, often bundling asset administration, settlement of investment transactions, pricing and other related services related to traditional custody of assets. Moving up value chain “Those businesses which normally provide custody services, and perhaps asset administration, are moving up the value chain. They are not simply providing the simple process, transactional services, but they have to use judgement in relation to net asset valuations, pricing and so on,” says Andrew Rigby, partner at Addleshaw Goddard, a London city legal firm specialising in technology and outsourcing. The primary driver of this trend has been the saturation of the market in custody and asset administration, so that suppliers had to invent new ways of getting revenue, says Mr Rigby. The maturity of the UK market and the large number of financial companies in the City of London have probably represented an attractive environment to UK suppliers, who are now gradually moving to Europe. The UK market is also easier to penetrate as many of the asset management firms are independent, whereas in Continental Europe asset management companies tend to be part of big banking groups, which prefer to keep asset administration and related services in-house. Perhaps it is too early to identify a clear tendency, but there are some signs that this outsourcing trend might still be reversed. Some of the asset management firms, such as Schroders and F&C, just after a year or less of outsourcing, have brought the back office back in-house. “Suppliers need to have a track record in providing these services, as part of their own business,” says Mr Rigby. “The ones that have managed to build up this new business based on what they are already doing are those who will succeed, rather than those businesses who have to create something new from scratch.” Very often these outsourcing entities are willing to bear the initial costs necessary to build up a solid business, and are then able to reap the benefits by using the same systems for other asset management companies.

Fleming: improved, faster services