Interview with Michael Appenzeller – While some managers are moving quickly to adapt their operating business model by outsourcing middle- and back-office functions to become more cost-efficient, common misconceptions remain. Michael Appenzeller, Co-founder of Etops, a Pfaffikon, Geneva and Bratislava-based company specialising in operational solutions for single managers and those managing multi-manager portfolios, is keen to dispel a few myths.
Myth #1 – Managers should have a core competency in operations
Managers have got a lot on their plate today. Aside from regulatory pressures, and investors becoming more discerning in terms of whom they invest with, operating margins are also tightening and the whole exercise of “alpha generation” is harder than ever. Ultimately, says Appenzeller, the core focus for any manager today has to be on generating performance. Nothing more. Nothing less. They have no recourse to get sidetracked developing myriad operational processes to ensure that regulatory compliance is being upheld.
“Operations is something that has to be done right, and by specialists. With added complexity throughout the industry process chain, all the rules governing managers under regulations like the AIFM Directive; that’s what operations takes care of. Not to mention staying nimble enough to adapt to rapidly evolving client needs and customisation requests. It yields significant results to outsource operations to specialists and concentrate on being your own specialist. It saves costs and radical specialisation, ultimately, will have an effect on performance.”
Myth #2 – Operational outsourcing is too much of a disconnect
“We work closely with traders and portfolio managers and actually become an embedded part of our clients’ teams,” stresses Appenzeller. “We are part of the way they work, but at the same time we are able to serve them as absolute specialists in our field.” The need for a close working relationship is essential and cannot be compared to the relationships a manager traditionally has with other third parties such as administrators and prime brokers.
“We work to understand the operational needs of each client, rather than applying our own solutions. We have to understand every detail of a client’s operations, otherwise we can’t be effective; we really are client-centric in our approach.”
Myth #3 – Outsourcing creates regulatory questions
The opposite is by-and-large true in Appenzeller’s opinion: “The main concern of regulators is with portfolio and risk management. Regulators watch the formal compliance of a manager and its activities, being concerned about investor security and the stability of a management company. Operational outsourcing helps strengthen those areas so regulators actually welcome it.”
With respect to regulation, independent outsourcing providers such as Etops focus on ascertaining the long-term strategic objectives of the manager, as opposed to operational ones. Larger management firms will typically have multiple offices, so for them, it’s more a case of deciding where they wish to be regulated. For smaller managers, it becomes more of a hand-holding exercise says Appenzeller, who adds: “It’s much easier to get the regulatory side of things in place at the start, even for those who don’t yet need to be regulated, as opposed to doing it further down the line, which creates legacy issues. Regulation is just one factor speaking for a close look at your operational set up. We are specialists in this, so if we like it or not, regulation keeps us busy too.”