(Pictured: James Shanahan)
As a rapid adoptor of new technologies, James Shanahan of Avaloq Sourcing Asia Pacific believes, Australia is likely to become increasingly advanced in the interface between fund managers and clients. As such, Australia is a good environment for his firm’s business processing outsourcing expansion.
Shanahan, the regional head of M&A for Avaloq, based in Singapore, said on a visit to Australia last week that a strong trend was for outsource partners to take on the real financial risk in a transaction and ensuing arrangements.
“We call this ‘third generation outsourcing’,” he said. “We own our own software and we offer a fixed price to lock in value for customers from the outset. We take on a financial obligation up front and we are therefore incentivised to continuously improve efficiencies both for ourselves and our customers.”
Avaloq aims, in any partnership, to lift the proportion of STP (straight through processing) transactions, which it invariably does, to drive these efficiencies.
However, because the company takes on a multi-tenanted operational risk, unlike customers themselves, there are certain parts of its operations that it wants to keep as “slow and hard”, Shanahan says.
He will be speaking on these and other outsourcing trends at the My Platform Rules conference on the Gold Coast, February 22-24. View website:
Shanahan, an Australian who has spent much of his career overseas, says that Avaloq’s background, as an outsource and core systems provider to European and now global private banking, with as much as 53 per cent of Swiss Wealth Management assets on the Avaloq platform, and over $3trn globally, had a “strong overlap” with the world of funds management in Australia.
As previously reported, Avaloq is the systems partner for the next generation of the BT Financial Group’s BT Wrap platform, which is already live and now being expanded in stages to investors.
He said that the Australian market was much more like the US than Europe or, even Asia. Europe was conservative and oriented towards wealth protection and Asia was at the other end – with trading and more speculative investments added to the product mix. The US and Australia are about building wealth, but with investors having more control over their decisions.
The three main themes he intends to address at the conference are: achieving genuine financial risk transfer; the new reality of risk for 3rd generation outsourcers; and the effects of a “closed learning loop” with in-built motivation for continuous improvement.
“The backoffice and IT systems no longer provide competitive advantage for fund managers,” he said. “In most cases, it’s more expensive to update a legacy system than to migrate to an existing managed service, and the pace of regulatory change is simply driving costs to unsustainable levels on those legacy systems. Our customers are telling us the answer lies in sharing these services and their costs, with all clients benefiting from the resulting expanding network effect.”
Avaloq has BPO centres in Switzerland, which is its home country, Germany and Singapore, with other centres in the process of coming online.
Its typical business strategy for a new centre is to own 51 per cent of the outsourced operations of a foundation customer, allowing it to also take on the customer’s existing staff. The fees charged, are therefore offset by the dividends from the customer’s retention of a 49 per cent interest in the centre, which grow as the new centre expands on the back of the foundation client acting as the reference account.
And for new clients coming on to an existing centre, they achieve the efficiencies built with the foundation customer from the outset – in other words, these new clients get the network benefits from day one.