The Attraction for US based fund managers setting up in the UK
by Andrew Rubio, CEO, Throgmorton
Since the early 2000’s, US based Hedge Fund and Private Equity managers have looked across the Atlantic as a way of expanding their businesses. In some cases it was to have actual portfolio managers operating in the UK, whereas in others it was to have a European research and/or marketing capability. Being in Europe allows the business to access markets and knowledge not easily available in the US. Crucially, it also opens the door to a larger, more diverse investor base.
Irrespective of the rationale for setting up in the UK, they all face the same challenges: different regulations, different taxing regimes, different employment laws and importantly, a different business culture.
Historically, US businesses have not always been keen on outsourcing in their own country. However, the exploits of Bernard Madoff have unwittingly forced US fund managers to outsource their fund administration function (pricing of positions, etc.) as investors are now unwilling to invest in a fund where the pricing is not performed independently.
On the other hand, when setting up in the UK fund managers eagerly embrace outsourcing. The reason? Simple: they don’t understand how things are done in the UK and find it much more economical and efficient to outsource the knowledge that they lack. They could of course hire a team of support staff internally but as they usually work to a budget, this would tend to be much more expensive. As such, they only hire core staff and outsource most other functions.
But cost isn’t the only reason. Afraid of employment laws that are more draconian than they are used to, US managers don’t like the idea of hiring vast numbers of staff that could be expensive and troublesome. In addition, there is another employment matter to consider: the career of the non-core staff they are hiring. Do they really want to develop the career of a payroll technician? How do they go about staff training them? What career path are they going to have? These are problems for the outsourced service provider, not the fund manager, which makes outsourcing a more attractive option.
Another benefit for US managers is the ability to scale up or down should the business either grow or shrink. Again, this allows the team to focus on managing money whilst the outsourced service provider reacts to the resourcing needs.
The changing regulatory landscape currently being dictated by Europe is causing the greatest challenge and potential obstacle to managers coming to the UK. Whilst the full impact of this is not going to be felt for a few years yet, US managers are keeping a close eye on developments. However, by having a fully scalable back office function due to outsourcing, the manager is more readily keeping his options open to change.
In a nutshell, the full benefits of outsourcing are seen in US inbound set ups; flexibility, scalability, cost savings, depth of local knowledge and control.