Securities services providers say they have seen a surge of new business over the past few months, particularly in Asia -- as some market participants had predicted.

State Street is gaining a new client every week for its compliance services worldwide, while Deutsche Bank recently experienced a bottleneck of new business in Asia, almost having to put some potential clients on hold.

Many in the industry -- including such heavyweights as Chris Ryan of Citi -- say there has been a fundamental shift in the way asset managers are doing business, preferring to outsource as a way of mitigating risk when facing more stringent reporting pressures. As a result, more and more middle- and back-office functions that were previously conducted in-house are being contracted to third parties.

Moreover, the assets under management and custody of banks are rebounding, as markets and sentiment in Asia continue to do well.

State Street has seen phenomenal growth in core services globally, says Pat Centanni, Boston-based executive vice-president of investor services for global product management. "We have been selling our compliance services at a rate of one client a week," he adds. Last year, State Street's was bringing on board a new client every few weeks.

Centanni says clients require daily performance. "Asset owners have established mandates for their managers and want to make sure their managers are adhering to the rules, if you will," he says. "So compliance has become very important."

Deutsche Bank also reports a surge in outsourcing contracts over the past three months. "Almost to the point of having an excess of new business, which is a good problem to have," says Thibaud de Maintenant, Asia-Pacific head of domestic custody services at the German firm in Singapore.

Another driver of new business has been the fact that many new funds were delayed or cancelled altogether last year and are being launched now, he adds.

Deutsche Bank has been hiring new staff to cope with the increased demand in India, Indonesia, Malaysia, the Philippines, Singapore and Taiwan.

Average assets under custody across Asia have increased by 100% since last year, due to a combination of new clients, new inflow of assets and the strong market recovery in valuations, with markets such as Malaysia and Taiwan rising more than 200%.

Hence, there has been a change in attitude in fund managers, which are under pressure to raise reporting standards, and this has made them outsource more, de Maintenant says. In addition, clients operating relatively more complicated strategies, such as futures and options funds in Taiwan and multi-class funds in Malaysia, are looking to outsource.

Asset managers also clearly understand the difference between fixed and variable costs, he says. Outsourcing, as opposed to renting offices and hiring staff, can be seen as a variable cost, which may be a more cost-effective way of doing business, especially if another financial crisis hits.

Additionally, many asset managers have been asking Deutsche Bank for a full suite of services, across fund administration, transfer agency, custody and trustee offerings.