Asset managers are increasingly acting to adopt resilient oversight and contingent NAV solutions, in the face of ongoing regulatory attention and maturing automation solutions. This is according to new research from institutional fintech firm Milestone Group, who have been directly engaged in developing these capabilities for the global investments industry.
Released today, the Outsourcing and Oversight Report 2019 highlights a number of significant industry trends. A key finding was the increase in emphasis on oversight with all asset managers surveyed across North America and Europe undertaking some form of oversight, which enables firms to oversee outsourced fund administration operations. This was up from 65% when compared to Milestone Group’s previous research from 2014. The survey also identified a material increase in concern over cyber-risk with 30% of respondents indicating it is a motivating factor in considering contingent NAV arrangements, which was not a consideration five years ago.
During the period, it seems some high-profile cases of service provider outages have instigated an air of additional caution, with 87% of respondents pointing to avoidance of reputational damage as the primary driver for oversight. In parallel with this, regulators are raising the bar for demonstrating best practice with most firms expressing awareness of increasing regulatory scrutiny. And this looks set to continue with most firms expecting more regulatory focus on oversight over the next five years, and 52% also expecting a similar increase in focus on contingent NAV capabilities.
Some contradictions also emerge from the research. Firstly, there is a high level of recognition that automation is integral to achieving efficient and resilient fund oversight, but manual spreadsheets are still utilized as part of the oversight function by around half of respondents.
Similarly, while nearly all respondents feel that independence of the oversight function from their service provider infrastructure is important, service provider reports and portals, which do not generally qualify as independent, continue to play a significant role in current oversight practices for 73% of respondents.
“It’s clear the industry is becoming aware of the nuances relating to operational risks that modern oversight and contingent NAV capabilities can mitigate, but there remains a way to go to for the industry to fully embrace resilient systems,” according to Paul Roberts, CEO of Milestone Group, “While there are relatively few headline-grabbing errors, practitioners know that outages happen more frequently than most realize. Many funds remain unprepared for a complete multi-day outage.”