Securities Industry Sees Growing Demand for Back and Middle Office Staff
As the asset management industry uses more complex financial instruments and faces increasing pressure to improve performance, cut costs and comply with regulatory requirements, more firms are going out-of-house for back- and middle-office functions (an array of securities services ranging from trade processing and settlement to fund administration and investment operations.) Meanwhile, following record net inflows of $41.1 billion in the third quarter of 2007, the hedge fund industry is also facing back-office staffing shortages. In fact, a recent study conducted by CPA firm, Rothstein Kass, shows that hedge fund back-offices are not only understaffed but also experiencing high rates of turnover.
Executive search firm, A.E. Feldman, reports that expanding operational needs of asset management firms and hedge funds, stemming from strong growth of assets under management, is opening doors for back- and middle-office staff at leading firms offering securities services. Opportunities exist in fund accounting and administration as well as investment operations and securities clearance and settlement.
This past year, a PricewaterhouseCoopers survey of more than 150 finance executives from mutual funds, hedge funds and other asset management firms found that 31% of asset management firms plan to increase their outsourcing arrangements with third-party providers for back- and middle-office functions over the next two years. The primary reasons cited for the expansion of outsourcing are the ability to focus on core competencies and to improve the quality of functions in-house finance teams are unable to adequately handle on their own.
Meanwhile, money is pouring into hedge funds, which has made it increasingly difficult for them to hire and retain adequate back-office staff, according to a recent survey conducted by Rothstein Kass. Nearly 60% of hedge funds polled say they currently do not have enough people working in the back-office. ”Hedge funds have seen tremendous inflows of capital in recent years, a trend that has accelerated as sophisticated investors seek to mitigate risk in volatile market conditions. However, as our research reveals, the rapid pace of industry growth has left back-offices more pressured than ever before,” says Howard Altman, Co-Managing Principal of Rothstein Kass.
The trend is creating opportunities at firms that provide back- and middle-office functions. JPMorgan Securities Services currently has a staggering $15.6 trillion in assets under custody. The firm recently announced that its Hedge Fund Services business opened an office in Luxembourg where asset growth of hedge funds and fund of hedge funds grew more than 46% last year. UBS Fund Services reports that as of Spetember 2007, fund assets administered hit $560 billion. In 2007, State Street reported that its international workload is booming. The firm states that business outside the United States is growing at a rate that is more than twice as fast as in the U.S.
