As the global asset management industry evolves and top managers look at driving profitability post-recession, knowledge processing outsourcing (KPO) providers such as Amba Research, Evalueserve, Copal Partners, WNS, Irevna and Genpact are being utilised for processes such as research, operations and analytics.

While cost continues to be a critical factor with savings of 30-40 per cent, it is less important than what it was a few years back. With outsourcing within the buy side community not as persistent as sell side, less than 5 per cent of asset managers use KPO services today, opening up many windows of opportunities due to low penetration. The stress is more on partnerships, which brings in steady longer-term volumes instead of shorter-tenure projects.

KPO firm Evalueserve, which has completed 10 years of operations, supports local as well as global asset managers providing a wide range of research and analytics services for portfolio management, industry analysis, financial modelling and risk management. Cost continues to be a critical factor, but less important than what it was a few years back, explains Alok Aggarwal, chairman and co-founder, Evalueserve. "At the very outset, clients are able to save on costs purely due to arbitrage in compensation levels. The most common form of engagement is dedicated analyst support which lends itself to a 40-50 per cent reduction in cost."

This means clients are not only looking to outsource a set of discrete low-end activities but also seeking a partner. Industry officials point out that clients have had poor experiences with some vendors as KPOs mushroomed, without a compliance system to safeguard sensitive client information. Without a partnership model, clients risk much more than KPOs.

“Once integration happens, KPOs are known to work around to demonstrate cost savings by re-engineering processes, reducing data spend, using smart tools to automate tasks. In our view, the cost savings can easily go up to 60 per cent and we have been told by our clients that we bring at least 25-30 per cent more cost savings even when compared to local captives,” Aggarwal said.

The work given to KPOs is also under-going an important evolution.

"CEOs, CIOs and COOs are looking at a broad array of profitability drivers from the ability to generate alpha to the ability to win new mandates and grow assets under management. Embedded within almost all of these profitability drivers will be certain processes that lend themselves to KPO. Therefore although our precise service offerings are quite broad, they all have the ultimate goal of enhancing customer profitability," says Ex-Goldman Sachs MD Anand Aithal, who is the co-founder and MD of Amba Research.

Bigger companies such as Genpact focus on mutual fund companies where they support in new account set-up, shareholder services, compliance and in-house market research to support competitive market intelligence.

However, the KPOs also face BPO-like attrition levels with 15-20 per cent of employees quitting in a year. Industry trackers pointed out outgoing MBAs and CFAs, hired by these firms, are initially lured by attractive compensation levels but later leave for better career paths and work profiles.

Amba's Aithal says given that KPO penetration into the asset management industry is still at an early stage, it is not unrealistic to target 20-30 per cent annual growth in headcount and revenues.

“Outsourcing of research and analytics has not yet reached a stage where it can be compared to IT outsourcing within the asset management world. Our focus around serving the asset management industry is growing and we believe this has the potential to grow many folds within the next 5 years," says Evalueserve's Aggarwal who previously headed IBM's India Research Laboratory.