Allianz Global Investors has signed a global outsourcing deal with Northern Trust to provide middle office services for its asset manager RCM in Asia-Pacific, Europe and North America. It will also use Northern Trust for settlement and fund accounting.
As part of the deal, Northern Trust has lifted 12 staff from AllianzGI’s operations team in Hong Kong. AsianInvestor understands they crossed over on September 1 and are now engaged in servicing for AllianzGI.
The agreement, which was approved in July, was pointed to by AsianInvestor in February this year, although AllianzGI said it was not in a position to reveal the service provider at that time.
Outsourcing fund accounting and middle-office functions has become a trend among fund managers, with the struggle to generate good returns having increased pressure on costs.
Another factor is that as demands for higher levels of risk management and compliance are imposed, fund managers have had to invest in infrastructure. “The last thing they want to do is make investments in their middle office,” Jay Hooley, global chief executive at State Street Corporation in Boston, told AsianInvestor in a previous interview.
George McKay, Hong Kong-based chief operating officer for Asia-Pacific at AllianzGI, has previously stated that outsourcing provides greater financial flexibility, meaning that if AUM falls, the cost of a fund-accounting service provider also drops.
But asked whether outsourcing had become a trend chiefly as a cost-saver, McKay says it is rarely the answer to immediate cost savings given initial transition costs.
"Over the long term, what it does offer is a reliable service level and more surety about ongoing costs, since the service provider can leverage scale against the significant investments required by the platform," he says. "Finding the right partner allows asset managers to focus on their core competency of managing money for clients."
This new deal will see Northern Trust provide services for RCM including post-trade execution support, trade processing and settlement, data management, reconciliations, portfolio accounting, client valuations and administration for its teams in Hong Kong, London and San Francisco. It will also support RCM sales and relationship teams in Singapore, Taiwan, Tokyo and Frankfurt.
McKay confirms that RCM was seeking a provider to support the firm with a "truly global platform to allow us to connect our investment platforms across Europe, the US and Asia. A good cultural fit was also important as we see this as a long-term partnership”.
Michael Hooper, chairman of RCM’s global operations group, added that Northern Trust’s commitment to Hong Kong was an important factor. "We believe this agreement will strengthen our regional trading while providing a true ‘pass the book’ capability to support our global operations.”
This is a notable mandate win for Northern Trust over rivals such as Citi and State Street. Asked how the biggest outsourcing firms in Asia compare, McKay explains: "The normal global custodians provide various services in the end-to-end value chain. Very few, if any, provide all end-to-end services in all markets.
"Also, services can vary in maturity from region to region. For example, finding a transfer agent service provider in the US or Europe is not difficult. In Asia, however, there are only a few that can offer the necessary scale. As a result, most large asset managers rely on insourcing."
Asked why she felt the asset servicer had been chosen by RCM, Camie West, Northern Trust’s head of global fund services (GFS) for Asia, points to its global operating platform as a differentiator.
West, who has worked for Northern Trust for over 20 years, was transferred from Chicago last November to build the GFS business out of Hong Kong. Starting from scratch back then, she says the addition of AllianzGI staff takes her client servicing team to 30 in Hong Kong. She notes that further hires can be expected.