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Hedge Fund Monthly

Outsourcing – An Indian Perspective
Partha Ghosh, PricewaterhouseCoopers, Mumbai January 2006


The assets under management of all the domestic funds put together today stand at a healthy US$44,000 million. Apart from foreign fund houses who have set up shop in India, many Foreign Institutional Investors (FIIs) and hedge funds are also very optimistic about India. HSBC, Deutsche, Fidelity, SunLife are only some of the names who have entered the Indian investment management market. The keen interest of global fund houses in India coupled with booming capital markets has opened up a very key opportunity; that of providing services to these fund houses in India. With the increase in number of players, there is an increasing pressure to perform and cut down margins. One efficient and effective way of achieving this was to replicate the model of "outsourcing" in India.

In India, though there are many service providers to cater to the accounting and back office processing requirements of hedge funds and FIIs, only a few players offer fund accounting services to domestic fund houses. With more fund houses wanting to enter India, there is obviously space for more service providers. Similarly in the registrar and transfer agent space, there are only a couple of dominant service providers, the services of which are used by most of the fund houses again indicating "opportunity".

The government is opening up Foreign Direct Investment (FDI) in almost all financial services sectors. This coupled with the talented pool of human resources is being effectively leveraged in the global market. Apart from "business process outsourcing" of low end back-office processing jobs, a new wave of "knowledge process outsourcing" has emerged. The skilful resources are now being used to carry out more knowledge oriented jobs such as research and analysis. They provide valuable support to their global counterparts who in turn are better able to analyse and understand the Indian markets making good money for their clients in return. The initial response in this area has been good and the future looks very encouraging.

One concern which has led to the slow development of outsourcing activities in India has been of data confidentiality. Business houses in India had never been comfortable providing access to their books and records and other vital client/investors' data to an "external service provider".

However, there has been a sea change in the thought process. Fund managers have realised that to sustain and grow, they need to focus and concentrate on doing what they do best, managing money and leave the rest for the external service providers. The government has also played its part done its bit by enacting the Information Technology Act. As with all developments, there are a few wrinkles in the entire process which will be ironed out.

Global fund administrators such as Mellon Bank are setting up shop in India to provide fund administration services to their clients spread across Europe. This has been possible as India can boast of skilled talent and is undoubtedly the "mecca" of IT savvy systems and processes.

The message is clear. Outsourcing is here to stay.

 

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