July 15: A global study of 200 fund managers across Europe and the United States who collectively manage $7.72 trillion in assets, commissioned by Carne Group (Carne), Europe’s largest third-party management company (ManCo), reveals a fundamental shift in the operational architecture of the asset management industry. Faced with a looming regulatory storm and an increasingly difficult recruitment landscape, fund managers are moving rapidly towards a model defined by the aggressive outsourcing of core functions to third-party specialists (please see the attached press release).
The research reveals fund managers are increasingly moving away from a do-it-all-in-house approach in favour of external partnerships that offer the scale, technological sophistication, and jurisdictional reach required to survive in a high-cost, high-scrutiny environment.
The regulatory squeeze and the talent deficit
Central to this transformation is a deepening concern regarding the global regulatory environment. An overwhelming 89% of fund managers surveyed agree that the ability to navigate regulatory complexities will become much harder over the next two years. This sentiment is driving a flight to expertise, as many fund managers realise that internal resources are no longer sufficient to keep pace with evolving transparency requirements and reporting standards.
The data also points to a critical talent gap within the industry. When asked why they are increasing their use of third-party service providers, 35% of respondents ranked the difficulty in recruiting appropriate staff as their top challenge. This was followed by the growing burden of regulation, which was cited by one in five (21%) as being the number one driver.
The outsourcing surge: Middle and back office in focus
In terms of the scale of this planned operational overhaul, 70% of fund managers surveyed expect to increase their use of third-party service providers over the next 12 months alone, with 41% of respondents planning a dramatic increase.
This trend is not a short-term fix but a long-term strategic realignment. Looking ahead over the next five years, 96% of asset managers questioned expect their use of third-party suppliers to increase, with over a third (37%) anticipating a dramatic shift in how they support their fund management businesses.
The willingness to switch
The research also reveals a highly competitive and fluid market for third-party services. Gone are the days of ‘provider for life’ relationships; fund managers are increasingly willing to switch suppliers to find the right fit for their evolving needs.
One in five managers (20%) confirmed they expect to switch to an alternative third-party service provider within the next year. When asked what would trigger such a move, the ability to offer a wider range of services was most frequently ranked top by respondents, followed by wanting higher service levels and then the need for better technological capabilities.
Interestingly, while cost and price remain important, they were cited as the primary reason for switching by only 13% of managers. This suggests that for today’s fund managers, value-add and service depth are now considered more critical than purely competing on price.
