As many as 93% of European fund managers believe a dramatic increase in outsourcing across the industry is inevitable as a means of reducing costs, according to research by Computer Sciences Corporation (CSC).
According to a survey of 114 pan-European fund managers, global custody is the operation most likely to be outsourced, with 82% citing it as a priority.
Two thirds of respondents indicated that securities processing and transfer agency functions should be outsourced, but in contrast only 18% believed that middle office functions should be.
Cost reduction is the main reason for outsourcing, particularly as 83% of respondents said that operational costs will push most fund management firms into the red if markets continue to fall.
The need to focus on core businesses and to gain access to more recent software were also cited as reasons for outsourcing.
Custodian banks are expected to win half of the market share in providing back and middle office operations to fund managers.
Paul Hart, vice president, investment management and securities, CSC UK, says the survey corresponds with Datamonitor's recent prediction that financial firms will increasingly turn to outsourcing as a means of controlling costs.
"Fund Management companies will pave the way for a new wave of outsourcing adopters - each focused on their own core competence in an evolving financial services value network," adds Hart.
In addition, over half (57%) of respondents predicted a terminal decline in the number of medium-sized players in the fund management industry, although two thirds of respondents feel that high street banks will become an increasingly important distribution channel for retail funds.