Business | Investment
Outsourcing of funds catching up in Asia
Rising interest is being driven by challenge of managing diverse assets
- Financial Times
- Published: 00:00 June 19, 2010
Asia's $7 trillion (Dh25.71 trillion) custodian banking sector is undergoing a "seismic shift" as fund managers seek to outsource portfolio risk management in the wake of the global financial crisis, according to a senior executive of Northern Trust.
Rohan Singh, the US custodian bank's Asia head of asset servicing sales, says the sector's fast growing Asian business is being transformed as regulatory and cost pressures have combined with heightened risk awareness to push fund managers into seeking more help with risk management.
"There's been a quite phenomenal turn of interest in demand for portfolio oversight," Singh says in an interview in Singapore. "Asia is the fastest growing region for us globally. It's a phenomenal rate of growth."
Singh says the value of assets held in custody by Northern Trust in Asia had risen from $146 billion in December 2008 to $263 billion a year later — an increase of 80 per cent.
"For about half of that $263 billion we have seen an uptake of interest in risk monitoring," he says.
The rising interest is being driven by the challenge of managing a wider range of assets as funds diversify into alternative investments and other areas in an attempt to avoid the disastrous correlation of assets that caused many to suffer significant losses during the crisis.
Singh says the crisis has also generated a heightened awareness of risk among the bank's Asian clients, which include seven central banks and four sovereign wealth funds, as well as fund managers and big institutions such as Australia's Future Fund and China's National Council of Social Security Funds .
Fund managers are also being pushed towards seeking outside help to monitor their assets by regulators seeking to ensure that funds are fully aware of the complex risks that may be lurking in portfolios, says Singh.
One example is the International Accounting Standards Board's regulation IFRS7, which requires funds to demonstrate that they understand the risk elements of their portfolios, and to report annually on how they are managing them.
Many funds continue to do their own risk modelling, but the challenge of managing the data is pushing many to outsource the job to the custodians, who are investing heavily in computing power.
In this respect, Asia is catching up with Europe and the US, where fund management institutions have been outsourcing for a long time.
Outsourcing is more difficult in Asia, because of the wide legal and cultural differences in regulations, says Singh.
"It's only now that Asian institutions are starting to amass the type of assets that would warrant a major outsource," he adds.
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