CSC | Overview of Fund Business Outsourcing Against the Background of Asset Management Expansion

CITIC Construction Investment Securities Research Written by: Zhao Ran China's fund business outsourcing is currently at a critical stage of transitioning from pilot exploration to large-scale development. Referring to the experiences of interest rate marketization and pension system reform in the United States during the 1970s and 1980s, the current "deposit migration," pension market entry, and expansion of asset management scale in China are driving the demand for specialized operational outsourcing. The core value of outsourcing lies not in the technology systems themselves, but in providing a full-chain professional service that includes custody, valuation, compliance, and data analysis, which requires building competitive barriers through technological empowerment and risk control systems. It is recommended that domestic institutions focus on independent operations, transparent pricing, and flexible services, transitioning from single backend support to a comprehensive service platform for the entire lifecycle. China's fund business outsourcing market has formed a trillion-level scale foundation, but there are significant structural differentiation characteristics. The penetration rate of private securities investment fund outsourcing is already high, while public funds, private equity, and venture capital funds are still relatively low in acceptance of outsourcing due to conversion costs, regulatory responsibilities, and the characteristics of non-standard businesses. The market presents a competitive landscape dominated by brokerage firms, supplemented by banks, and the rise of public funds, with a clear trend of concentration among leading players. Currently, the industry faces constraints such as an immature service pricing mechanism, insufficient business independence, and a lack of system flexibility, which restricts the penetration of outsourcing services in a broader asset management field. The development history of fund administrative services in the United States indicates that interest rate marketization, pension system reform, and the improvement of regulatory frameworks are the core driving forces behind the professionalization of the industry. From the financial disintermediation and long-term capital market entry in the 1970s and 1980s to the establishment of independent third-party administrative services as a market standard after risk events, outsourcing services have gradually evolved from simple backend processing to comprehensive professional services covering custody, valuation, and compliance monitoring. International experience reveals that core competitiveness does not lie in the technology systems themselves, but in building stable and precise professional service capabilities, independent third-party risk control mechanisms, and multi-level business continuity management systems. Based on the above experiences, domestic institutions engaging in fund business outsourcing should focus on building three core capabilities. First is the capability for specialized services, where brokerage firms should leverage their multi-license synergy to create a "custody +" comprehensive ecosystem, banks should deepen their public fund and wealth management client base relying on custody scale, independent third parties should fill niche demands with flexibility, and fund subsidiaries should provide integrated operational and investment research solutions. Second is transparency construction, which requires establishing standardized information disclosure mechanisms and clear pricing systems. Finally, independence assurance should be achieved by establishing independent subsidiaries to isolate personnel, locations, and systems, creating effective firewalls and responsibility boundaries. As the scale of asset management continues to expand and product complexity increases, fund business outsourcing is transitioning from a cost-oriented efficiency tool to a value-creating infrastructure. The industry will show a trend of deepening specialized division of labor and extending full-chain services, with service boundaries expanding from traditional valuation and settlement to post-investment management, performance analysis, compliance consulting, and other lifecycle segments The future competitive landscape may be restructured, with institutions that possess comprehensive financial service capabilities, strict risk isolation mechanisms, and highly customized service levels expected to dominate during the process of increasing concentration, driving the professional division of labor in China's asset management industry towards maturity. Overview of the Development of Domestic Fund Business Outsourcing: A Trillion-Level Market Has Formed but Structural Differentiation is Significant 1.1 Definition and Development History: The Policy Framework Has Evolved Over Ten Years to Establish the Industry Foundation According to the "Guidelines for Fund Business Outsourcing Services (Trial)" released by the Asset Management Association of China in 2014, fund business outsourcing refers to the services provided by fund business outsourcing service institutions (hereinafter referred to as outsourcing institutions or service providers) to fund managers, including sales, sales payment, share registration, valuation calculation, information technology systems, and other services. If the series of processes from the design, review to the sale of fund products is compared to the "production and sales" process of a product, then the front office business of a fund company generally includes fund promotion, product marketing, fund raising, sales support, and other aspects that are directly related to the capital market; the middle office business mainly includes product design, private equity performance fee accrual, and income distribution plan setting; while the back office focuses on registration, valuation calculation, transaction clearing, and operational process construction. Fund business outsourcing is also known overseas as "fund administration services." In the 1980s, facing the industry dilemma of continuously declining custody service fees, custodians in the United States and Europe extended fund administration services from "Securities Servicing," covering a wide range of services including fund transaction management, cash position management, fund accounting and administrative management, share transfer registration, bookkeeping, file management, data governance, reconciliation services, and investment performance evaluation. With the vigorous development of global financial markets, the fund outsourcing service industry emerged and has undergone a transformation from simple back-office processing to complex data management, and from single functional modules to comprehensive solutions. Currently, the core competitiveness of this industry has shifted from technical systems to professional service capabilities, specifically manifested in: the stability and accuracy of service output, full response to personalized needs, agility of service timeliness, and foresight in innovation dimensions. With the continuous penetration of financial technology, the fund outsourcing industry will further focus on the development direction of digital operations, intelligent decision-making, and personalized customization. From the perspective of the birth process of fund business outsourcing, its essence is the process by which the fund industry and managers achieve cost reduction, efficiency enhancement, and quality improvement. Firstly, against the backdrop of increasingly stringent regulations, compliance, risk control, and information disclosure in fund operations continue to increase, and the accelerated development and innovation of the wealth asset management industry make the business more rich and complex. The sinking of front and middle office business to the middle and back office has led to an expansion of operational department responsibilities, but the organizational structure has not been adjusted accordingly This has increasingly burdened the operations of managers. Secondly, there is a problem of redundant construction in the operational system of the industry, where parts of the operational business system are internal and parts are external, leading to the dispersion of products, demands, services, data, and systems, making it difficult to coordinate risks. New personalized demands, services, and risk points arise from the daily business interactions between the entrusting party and the entrusted party. Therefore, achieving lightweight operations and intelligent operations through outsourcing, promoting the reconstruction of the industrial chain, centralized operations, assembly line production, and modularization has become a feasible path to address the above challenges and improve the overall efficiency of the industry. In fact, the outsourcing of fund business in China started relatively early, but the overall promotion has been relatively slow. The earliest outsourcing of fund business in China can be traced back to 2004, when the release of the "Implementation Rules for the Registration and Settlement Business of Listed Open-End Funds" allowed open-end fund companies to outsource registration, transfer, and settlement processes to China Securities Depository and Clearing Corporation Limited. By the end of 2005, 22 fund companies, represented by Penghua Fund, collaborated with China Securities Depository using the TA outsourcing model. For a long period afterward, the promotion was relatively slow because the TA system of China Securities Depository was mainly aimed at the entire fund industry and could not meet the specific needs of a particular company. It wasn't until 2012 that the China Securities Regulatory Commission released the revised "Measures for the Administration of Securities Investment Fund Management Companies" and simultaneously issued the "Regulations on Issues Related to the Implementation of the Measures for the Administration of Securities Investment Fund Management Companies." The new "Measures" allowed fund companies to entrust qualified third-party service institutions to handle fund share registration, accounting, valuation, and information technology system development and maintenance, while also requiring a thorough assessment and formulation of relevant risk management systems, strengthening the evaluation and constraints on service institutions, and ensuring the confidentiality and security of business information. The "Guidelines for Fund Business Outsourcing Services (Trial)" officially released in 2014 clarified the definition and scope of outsourcing services and further published relevant operational guidelines. After 2015, the China Securities Regulatory Commission mentioned again in the "Opinions on Accelerating the High-Quality Development of the Public Fund Industry" released in 2022 that "research further optimizes the trading model of fund management companies, and the outsourcing of public fund back-office operations transitions from pilot to regular, supporting small and medium-sized fund management companies to reduce costs and increase efficiency, focusing on enhancing investment research capabilities," indicating that the policy level will further introduce detailed rules to support the development of outsourcing business, reflecting the regulatory intention to create a diversified ecosystem in the fund industry and improve industry efficiency. 1.2 Market Development Status: Full Coverage of Private Securities Outsourcing Coexists with Low Penetration of Other Asset Management Products China's fund outsourcing service market has formed a scale of trillions, covering various institutions in the asset management industry. Different entities, based on business attributes, development stages, and regulatory environments, show differentiated levels of acceptance and cooperation models for outsourcing (1) Private Equity Funds and Venture Capital Funds There are structural differences within the private equity fund community, with significant differentiation in outsourcing choices between securities and equity institutions. Private securities investment funds have become a deeply penetrated area for fund business outsourcing services due to better liquidity of investment targets, relatively uniform valuation methods, and standardized share registration rules. Outsourcing services can cover the entire process from registration and valuation to information disclosure. In contrast, the outsourcing degree of private equity investment funds and venture capital funds is relatively limited. These institutions involve non-standardized project investments, longer duration cycles, and complex profit distribution structures, with managers having a strong need for autonomous control over resource maintenance on the funding side and post-investment management on the project side. Currently, they mostly handle accounts through internal teams or manual methods. Private equity funds with cross-border business or foreign backgrounds have service needs in cross-border tax planning and multi-currency valuation to maintain global operational consistency, becoming a segmented customer group with growth potential. According to the association's statistics, private securities investment funds have basically achieved full coverage of outsourcing services, constituting the core customer group of the outsourcing market. By the end of 2024, the number of private securities investment funds using outsourcing services reached 83,200, accounting for 99.25% of the total number of private securities funds; the involved fund scale was 4.63 trillion yuan, accounting for 98.47%. Among them, the adoption rate of share registration services reached 99.77%, and the adoption rate of valuation services reached 99.62%, almost becoming an industry standard. The high penetration rate is mainly due to regulatory requirements for the normative operation of private securities funds and the tendency of small and medium-sized private managers to delegate operational functions to professional institutions for cost-effectiveness, thereby focusing on core investment research capabilities. The outsourcing penetration rate of private equity investment funds is relatively low, but the potential market space is vast. By the end of 2024, only 5,334 private equity investment funds used outsourcing services, accounting for 17.61%; the involved scale was 874.411 billion yuan, accounting for 7.97%. The average scale of a single fund is 164 million yuan, significantly lower than the 405 million yuan of funds that do not use outsourcing, reflecting that small and medium-sized equity funds are more inclined to use outsourcing services. The low outsourcing rate of equity funds is mainly due to long investment cycles, complex cash flow structures, high non-standardization of underlying assets, and the high demand for personalized operational support in project-based management, leading managers to prefer building their own operational teams With tightening regulations and increased transparency demands from LPs, there is still significant expansion potential for outsourced services in private equity investment funds. The acceptance of outsourcing in venture capital funds is at a relatively low level, exhibiting similar characteristics to equity funds. By the end of 2024, there were 3,065 venture capital funds using outsourced services, accounting for 12.20%; the involved scale was 212.54 billion yuan, accounting for 6.31%. These funds are usually smaller in scale and operate flexibly, with some early-stage funds even lacking a standardized operational system, leading to slow penetration of outsourced services. (2) Public Funds and Securities Asset Management Public fund management companies currently primarily rely on self-built operational systems, with outsourcing applications still in the exploratory stage. Most fund companies choose to independently build valuation accounting and registration systems based on historical investments and risk control considerations. This choice stems from three factors: first, stock replacement involves system migration and personnel adjustments, resulting in high conversion costs; second, regulatory requirements stipulate that the responsibility for information disclosure still lies with the manager, and institutions maintain a cautious attitude towards data security and operational controllability; third, product innovation requires a high operational response speed, and standardized outsourcing services have limitations in flexibility. However, some newly established small public funds have begun to attempt outsourcing backend operations to reduce initial investments through a light asset model, demonstrating a trend towards diversified operational models. The operational strategies of securities asset management and their private subsidiaries show a layered pattern, with large institutions tending to build in-house while smaller institutions consider outsourcing. Securities asset management subsidiaries with larger management scales typically invest resources to promote operational automation and digital construction, building a full-functional middle platform covering valuation accounting, share registration, and transaction clearing to support complex multi-asset allocation needs. Smaller or newly established securities asset management subsidiaries tend to leverage resources from their parent companies or entrust operational tasks to external institutions. These institutions focus on the synergistic effects with custody, research, sales, and other businesses when choosing outsourcing services, preferring to achieve resource sharing through comprehensive financial service solutions rather than purely cost considerations. In recent years, with the enhancement of compliance requirements, the securities sector has paid more attention to the risk control capabilities and compliance records of outsourcing service providers. Currently, the reliance on outsourcing services for securities and futures private asset management products is relatively low, primarily relying on internal resources. By the end of 2024, among the fund products provided by private fund service institutions (excluding wholly-owned subsidiaries) that offer share registration and valuation accounting services, the number of private asset management products issued by securities and futures operating institutions that accept outsourcing services was 6,490, accounting for only 4.53% of all outsourced service products. For securities asset management, they typically have complete custody and operational infrastructure, allowing them to directly share the service capabilities of their parent company or group, resulting in a relatively low market-oriented outsourcing ratio (3) Bank Wealth Management, Family Offices, and Others Bank wealth management subsidiaries have generated operational outsourcing demands during their transformation to net worth-based models, but the path choices of institutions with different backgrounds vary. As the new asset management regulations promote the shift of wealth management products to net worth types, some banks face challenges in adapting their back-office operational capabilities. Large banks and their wealth management subsidiaries often resolve these issues through internal collaboration, entrusting operational functions to the asset custody department of the parent bank or the group's shared service center. In contrast, the wealth management subsidiaries of small and medium-sized city commercial banks and rural commercial banks, lacking experience in operating net worth products, are more inclined to seek support from external professional fund administration service providers. Since bank wealth management primarily consists of public offering products, there are detailed requirements for information disclosure frequency, valuation accuracy, and liquidity management, thus imposing high demands on the public operation capabilities and compliance experience of outsourcing service providers. Family offices tend to adopt a light asset operation model, achieving a balance between efficiency and privacy through functional separation. These institutions typically retain core decision-making functions such as asset allocation and investment portfolio management internally, while outsourcing supportive tasks like accounting valuation, post-investment management, compliance consulting, IT system maintenance, and tax planning to external agencies. Family offices engaged in global asset allocation also need to address accounting treatment, tax reporting, and compliance requirements across different jurisdictions, thus having specific needs for cross-border administrative services. When selecting service providers, these institutions emphasize the reputation of partners, data security protection capabilities, and experience in complex asset valuation, preferring to establish long-term cooperative relationships with professional service institutions in mature financial markets. Finally, the degree of outsourcing application among other asset management institutions varies, with a general preference for self-built models and a cautious attitude towards outsourcing. Due to limitations in management scale and resource conditions, some newly established or small futures asset management institutions may choose outsourcing services or collaborate with affiliated financial institutions. Trust companies, having been established earlier, have mostly built relatively complete internal operational systems, and currently, outsourcing cases are relatively limited. Insurance asset management, due to the special nature of funds and clear regulatory requirements, has high internal standards for risk control and limited practical experience in back-office operational outsourcing. These institutions generally face sunk costs from existing system investments and have concerns about data security, business continuity, and compliance responsibility allocation in a highly regulated environment, leading to a conservative approach in outsourcing decisions. 1.3 Competitive Landscape and Trends: The Dominance of Securities Firms is Solidified, but Digitalization and Cross-Border Services Create New Changes 1.3.1 Current Market Landscape: Clear Dominance of Securities Firms and Concentration of Leading Players The fund outsourcing service market has formed a centralized competitive landscape dominated by leading financial institutions, with securities firms holding significant advantages in the private equity fund sector, and the continuous decline in industry fees driving the transformation of service models. According to data released by the Asset Management Association, as of the end of 2024, there are a total of 51 private equity fund service institutions registered with the association, mainly including five categories: securities companies, commercial banks, fund companies, IT companies, and third-party independent service institutions, among which securities companies account for the highest proportion at 43.14% From the perspective of service providers, domestic securities firms rely on multiple licenses such as custody, outsourcing, agency sales, brokerage, and investment research, showcasing significant comprehensive service advantages. By the end of 2024, the top three service institutions in terms of external service business scale for private equity fund service institutions accounted for 43.98% of the total asset scale, while the top ten service institutions collectively accounted for 78.09% of the total scale, indicating a high industry concentration. Compared to the end of 2023, the overall pattern of the fund service industry has remained basically stable, with the advantages of the first tier becoming increasingly apparent, and the second tier, which has surpassed one hundred billion yuan in service scale, continues to expand, specifically represented as "3+14+n". Specifically, the top three institutions have service scales exceeding 100 billion yuan, collectively accounting for 43.98% of the total scale; the subsequent 14 institutions have scales between 10 billion and 90 billion yuan, collectively accounting for 48.88% of the total scale; the remaining service institutions belong to the third tier, with scales not exceeding 10 billion yuan, collectively accounting for 7.13% of the total scale. In recent years, many securities firms have been actively undertaking outsourcing business for foreign public funds, such as Guotai Junan collaborating with Legg Mason, and China Merchants Securities becoming the overall operation outsourcing service provider for Fidelity Investments, each having their own advantages in terms of public fund product variety, business coverage, or service efficiency. In addition, banks, leveraging their custody license advantages and capital clearing capabilities, have become important participants in the fund business outsourcing service market, but their business focus is concentrated on the needs within the bank wealth management system, with relatively limited participation in the private equity fund sector. In April 2015, the Asset Management Association of China announced the first batch of private equity fund business outsourcing service institutions, with four commercial banks—Industrial and Commercial Bank of China, China Construction Bank, China Merchants Bank, and Ping An Bank—being included in the record; in June 2015, the second batch included Shanghai Bank; in December 2015, the third batch included Ningbo Bank and Bohai Bank; and in 2019, the fourth batch included Bank of China. As of 2024, the domestic commercial banks qualified for fund outsourcing include the aforementioned eight. In terms of business structure, bank outsourcing services are primarily focused on bank wealth management operations, with a small portion involving trusts, futures asset management, and private equity funds; in the field of administrative services for private equity funds, influenced by the lesser licensing advantages compared to securities firms and risk aversion strategies, large banks mainly adopt a "bank custody + securities firm outsourcing" business model or only cooperate with government platform backgrounds and leading private equity institutions On the other hand, public fund companies, as providers of fund business outsourcing services, have rapidly risen during the window period of the transformation of bank wealth management to net value, leveraging their specialized operational capabilities and financial technology advantages, forming a distinctive service model represented by Chuangjin Hexin and Huaxia Fund. In the first batch of licenses issued in 2015, Huaxia Fund and Caitong Fund were among the public fund companies that made the list. Among them, Huaxia Fund was the first to start operations after obtaining the license, seizing the opportunity of the bank wealth management net value transformation in 2018. As service providers, public fund companies attract bank clients by adopting low fee strategies, using operational outsourcing as a means of attracting clients rather than a primary source of profit, with the ultimate goal of providing banks with investment research capabilities and asset allocation strategies, thereby attracting bank funds to establish dedicated fund accounts or subscribe to public funds. Currently, public fund operational services are upgrading from departmental-level business to an independent subsidiary model, with Huaxia Fund's approval to establish the industry's first operational service subsidiary marking the establishment of a trend towards specialized division of labor. In June 2025, Huaxia Fund was approved to establish the first operational service subsidiary in the fund industry; prior to this, Chuangjin Hexin Fund had submitted an application for the establishment of an operational service subsidiary and received regulatory feedback in September 2023. This transformation aligns with the policy direction of "supporting differentiated development of public fund companies" outlined in the "Opinions on Accelerating the High-Quality Development of the Public Fund Industry." Currently, public fund outsourcing service providers mainly offer full-chain operational outsourcing services to newly established fund companies, and compared to brokerage firms, public fund service providers have a comparative advantage in operational experience in dedicated accounts and cooperation with bank funding sources. 1.3.2 Service Evolution Trend: Digital Transformation and Full-Chain Extension Reshaping Industry Competitiveness The fund business outsourcing service market is undergoing profound changes driven by regulatory upgrades, technological iterations, and diversified customer demands, requiring service providers to seek a new balance between compliance bottom lines, technological investment, and differentiated capability building. Firstly, digital transformation and intelligent operational capabilities have become the watershed of core competitiveness for service providers. With the maturity of cloud computing, big data, and artificial intelligence technologies, fund business outsourcing services are shifting from labor-intensive to technology-intensive, with robotic process automation widely applied in operational processes such as valuation calculation, share registration, and regulatory report generation, reducing human operational risks and enhancing operational efficiency. Leading institutions like China Merchants Securities have launched AI large model hosting intelligent assistants and accelerated the construction of the "Smart · Bole" fund analysis platform, innovating private fund evaluation and analysis capabilities through financial engineering methods. In the future, compliance technology talents who can translate compliance requirements into system rules and possess real-time data interaction and risk warning capabilities will become the focus of competition in the industry. Secondly, the service boundary is extending from single custody outsourcing to a comprehensive full-chain service platform. The traditional service framework centered on asset custody and clearing settlement can no longer meet the diversified needs of institutional clients, and service providers are building a one-stop investment service platform that includes "asset protection, resource linking, operational outsourcing, and digital services." Specifically, the service scope has expanded to areas such as manager registration and filing guidance, product design, personalized reporting, investment performance analysis, ESG reporting, and even special purpose company management. For example, Guotai Haitong's custody services have covered the entire process from filing guidance to new regulation interpretation. In addition, against the backdrop of increasing industry concentration, the trend of specialization and vertical division of labor has become prominent. As funds continue to concentrate towards leading institutions, the fund business outsourcing service market is exhibiting a "Matthew Effect," where service providers with institutional-level infrastructure and scale advantages will further expand their market share. At the same time, the market is giving rise to more refined specialized divisions of labor: on one hand, large securities firms rely on the research capabilities of their research institutes and trading system advantages to focus on serving leading private equity firms with high trading requirements, such as quantitative strategies; on the other hand, independent third-party administrative service providers (such as Guojin Daofu) are establishing professional barriers in specific areas like valuation accounting through market-oriented operations and risk isolation mechanisms. Some highly specialized businesses have even seen a phenomenon of "secondary outsourcing," where securities firms outsource valuation and clearing processes to independent professional institutions to reduce costs and improve efficiency. At the same time, cross-border service capabilities have become essential infrastructure for service providers to follow clients overseas. Against the backdrop of accelerated globalization of Chinese asset management institutions, administrative service providers are speeding up their internationalization efforts by establishing service networks in Hong Kong, Singapore, and even the Middle East, providing managers with "Partner+" offshore fund business outsourcing service brands. This trend involves not only traditional cross-border custody services but also complex services such as global tax compliance, multi-currency valuation, and international regulatory reporting. With the advancement of RMB internationalization and the relaxation of policies like QFLP, service providers with cross-border operational capabilities will gain a certain competitive advantage. Finally, stricter regulations and ESG disclosure requirements are driving service providers to strengthen compliance technology investments. Previously, the "Guidelines for the Operation of Private Securities Investment Funds" to be released in 2024 has strengthened operational norms in terms of fundraising, investment ratios, and derivatives trading; the "Administrative Measures for Securities Investment Fund Custody Business (Revised Draft)" in 2025 will for the first time clarify that private securities investment funds are subject to the "one custodian to the end" custody model, requiring custodians to implement full-process supervision over investment scope, related transactions, net asset value accounting, etc., significantly increasing the complexity of compliance management. Meanwhile, ESG disclosure standards continue to be strengthened in the fields of listed companies and bond issuers, and fund business outsourcing service providers may need to adapt to the trend by offering value-added services such as carbon accounting and sustainable investment reporting. In the future, systematic solutions that can effectively integrate regulatory data reporting, automated compliance monitoring, and ESG performance evaluation are expected to become key differentiators for service providers. Experience in the development of overseas fund business outsourcing: The U.S. model is mature and highly valuable for reference 2.1 Overview of U.S. Fund Administrative Services: Market-oriented operations and the formation of a differentiated competitive landscape among two types of entities The United States has the largest asset management market in the world, with open-end funds ranking first in scale, laying the foundation for fund administration services. According to WTW statistics, by the end of 2023, the total discretionary managed assets of the world's top 500 asset management companies reached USD 127.92 trillion, a year-on-year increase of 12.48% compared to 2022. In terms of regional distribution, North America's AUM reached USD 77.81 trillion, accounting for 60.83%, maintaining the top position globally for several consecutive years. In the global asset management market, the United States occupies a major position and is the most developed asset management market. By the end of 2023, among the top 500 asset management companies globally, 19 out of the top 25 institutions by asset management scale are American institutions, accounting for 82.09% of the top 25 institutions. Additionally, according to ICI statistics, the regulated open-end funds in the United States have developed to USD 38.8 trillion by the end of 2024, far ahead of Europe and the Asia-Pacific region. The enormous fund scale has created significant business opportunities for the U.S. fund administration services industry. U.S. fund administration services are conceptually similar to the outsourcing of fund business in China, operating through a market-oriented model, providing customized operational solutions to meet the needs of fund managers for improving efficiency, reducing costs, and ensuring the continuous stability of fund assets. In the process of expanding the scale and types of various funds, fund managers typically rely on operational outsourcing to reduce operating costs and improve operational efficiency, allowing them to focus more on high-value investment activities. Currently, U.S. fund management operations mainly operate through a market-oriented model, with participants in administrative services primarily including two categories: (1) The first category consists of commercial banks and large brokerage firms engaged in fund custody business. These institutions specialize in providing investment management services to institutional investors, including offering fund operational process outsourcing services. For example, leading custodians such as State Street Bank, BNY Mellon, and JP Morgan have gradually extended their services from highly standardized basic account opening, asset custody, and valuation clearing to value-added services such as financial reporting, cash management, compliance monitoring, and tax management through technological investments, forming a complete set of outsourcing business solutions. Their advantages lie in credibility, professionalism, and comprehensive financial licenses, with relatively high fee rates. In addition to deploying operational points locally, these outsourcing companies also establish fund accounting processing centers in other regions or countries to further reduce labor costs; (2) The second category consists of independent third-party service institutions, which often also hold brokerage, market-making, and fund advisory licenses. Their advantages include digitization, flexibility, lower fee rates, and higher risk tolerance, primarily targeting small and medium-sized asset management institutions. For example, some technology service providers leverage their system advantages to expand their business boundaries, extending their operational service scope from software support to fund administration, focusing on small and medium-sized private equity funds and family offices as long-tail clients, with representative institutions including companies like SS&C Overall, the U.S. fund administrative services have experienced a development process from simple back-office processing to complex data processing, from single services to comprehensive services. The core of outsourcing business lies not in the system, but in professionalism and service, mainly reflected in the stability and accuracy of service quality, comprehensive support for personalized needs, efficient and quick response to demands, and comprehensive and in-depth innovation aspects. 2.2 Industry Development History: The Prosperity of Custody Business and the Scale Development Drive the Maturity of Outsourcing Services 2.2.1 Market Foundation Construction: Expansion of Large Asset Management and Pension Fund Entry into the Market Stimulate Custody Outsourcing Demand Regulatory Foundation and Self-Administration Stage (1940s-1960s): The Legal Origin of the Custody System. The institutional prototype of modern fund administrative services originated from the enactment of the Investment Company Act in 1940. This act established rules specifically for managing mutual funds and clearly required custodians to undertake core functions such as asset custody, fund clearing, and regulatory communication, laying a compliance foundation for subsequent administrative service outsourcing. However, during this period, fund operational functions (accounting, share registration, valuation calculation) were mainly handled by internal teams of managers or investment banks, and the industry was in a "self-operation" stage. Offshore Stimulus and Taxation Drive Stage (1968-1997): The "Ten Commandments" Promote the Birth of Business Models. The true birth of the U.S. fund administrative services industry originated in 1968 when the Internal Revenue Service (IRS) established implementation rules based on Section 864(b)(2) of the Internal Revenue Code. This regulation required that if offshore funds managed by U.S. managers wanted to avoid being classified as engaging in trade or business in the U.S. and thus paying U.S. federal income tax, they must complete ten core administrative functions outside the U.S. These ten functions specifically include: communication with shareholders, communication with the public, fundraising and sales, accepting subscriptions from new shareholders, maintaining major company bookkeeping records, auditing company accounts, paying dividends and fees, publishing subscription and redemption prices, holding shareholder and board meetings, and handling redemptions. This tax regulatory policy interacted with the "financial globalization wave" at the time, directly giving rise to the offshore fund administrative services industry. Offshore financial centers such as the Cayman Islands and the British Virgin Islands saw a surge of professional administrative service institutions providing basic accounting, NAV calculation, and compliance reporting services for hedge funds. Interest Rate Marketization and Banking Transformation Stage (1970s-1980s): Business Extension from Custody to Administrative Services. After the two oil crises in the 1970s, the U.S. entered a stage of "economic stagflation, growth shift," with high domestic inflation and an economy trapped in stagflation. Limited by the interest rate controls of the Q provisions of the Glass-Steagall Act of 1933, commercial banks faced the phenomenon of "financial disintermediation," with a large amount of deposit funds flowing from banks to non-bank institutions represented by money market funds. During the interest rate liberalization reform in the 1980s, banks faced increasing pressure from narrowing interest margins and were forced to actively expand non-interest income sources Since the 1980s, the proportion of deposits in the assets of American residents has been continuously declining. The banking industry began to expand value-added services such as "fund transaction management, cash management, fund accounting and administration, and transfer registration" based on core custody functions, leading to the initial growth of fund administrative services alongside the transformation of bank custody businesses. The entry of pension funds into the market and the deepening of the capital market phase (1980s-2000s): A watershed of scale and specialization. During this phase, American fund administrative services completed a key transition from "self-operation" to "professional outsourcing," driven by the dual forces of pension system reform and the construction of a multi-tiered capital market. The Employee Retirement Income Security Act of 1974 introduced the IRA system, and the Revenue Act of 1978 added the 401(k) provision, which took effect in 1980, promoting the formation of the three-pillar pension framework. Meanwhile, the scale of American mutual funds exploded. In 1980, the asset size of American mutual funds was approximately $135 billion, surpassing $1 trillion by 1990. The increased operational complexity brought about by the expansion of management scale led many small banks, brokerages, and fund management companies, lacking scale and professional advantages, to outsource fund operations to specialized, large custody banks, promoting the transition of fund companies from a "decentralized business processing model" to a "centralized business processing model." The independence and integration phase after the financial crisis (1997 to present): Third-party administration becomes the market standard. The Taxpayer Relief Act of 1997 abolished the "Ten Commandments," allowing fund administrative functions to return to the United States, marking the official start of the modern era of third-party fund administrative services. After the 2008 financial crisis and the exposure of the Madoff Ponzi scheme, investors and regulators profoundly questioned the independence risks of managers' "self-administration." Industry regulation tightened, and investors listed "independent third-party administrative services" as a mandatory clause in due diligence. This phase of the industry exhibited characteristics of large-scale integration. In June 2012, SS&C acquired GlobeOp for approximately $834 million, becoming one of the largest mergers in the industry at that time; in 2016, SS&C acquired Citigroup's alternative investment services business for $425 million. The current service scope of overseas private equity funds has also expanded from traditional valuation accounting and share registration to integrated services in "cash management, derivatives processing, collateral management, and risk performance analysis." From the perspective of revenue types, fund administrative outsourcing service fees and bank custody fees are two independent revenue categories, although some large custody banks can provide both types of services simultaneously. The revenue from Bank of America's asset custody business mainly comes from custody fees as stipulated in agreements, which are usually charged as a percentage based on the total net asset value (AUM) of the custody assets. Fund administrative outsourcing service fees are another independent source of revenue, separate from custody fees. The services include TA transfer agency, TA clearing, fund accounting/reporting, investment supervision, risk performance assessment, etc. Among these, fund accounting and valuation services are typically charged based on asset size, while TA services are more often billed based on the number of transactions or accounts. Unlike the U.S. market, fund outsourcing services in China are usually bundled with custody, distribution, and other services, making it difficult to achieve completely separate independent pricing. 2.2.2 Improved Regulatory System: Prudent Principles and Compliance Technology Promote the Standardization of Services In the development of fund administrative services in the U.S., regulatory policies are the core driving force behind the standardization of this business. From the establishment of the statutory origin of the custody system in the 1940 Investment Company Act to the strengthening of systemic risk control in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the evolution of the regulatory framework has always revolved around three main lines: "preventing conflicts of interest, ensuring functional independence, and guaranteeing business continuity." In particular, the structural flaws exposed by the 2008 financial crisis and subsequent risk events prompted regulatory agencies to establish mandatory decentralization requirements, profoundly reshaping the competitive landscape of the industry. (1) The Evolution of the Historical Regulatory Framework The regulatory system for U.S. fund administrative services is built on the legal tradition of separation of business and functional isolation. The 1940 Investment Company Act laid the foundation for the modern mutual fund regulatory framework, clearly requiring that assets must be held by qualified custodians, establishing the legal status of the custody system. Subsequently, the 1970 Investment Company Amendments expanded the regulatory definition of "interested parties," the 1999 Gramm-Leach-Bliley Act established financial privacy rules, and the 2002 Sarbanes-Oxley Act strengthened audit independence, continuously promoting the professionalization and independence of operational services. The introduction of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act marked a qualitative change in post-crisis regulation. Section 411 of this act amended the Investment Advisers Act, adding Section 223, which authorized the U.S. Securities and Exchange Commission to formulate rules requiring investment advisers (including through independent public accountant verification, etc.) Ensuring the safety of client assets. The strengthening of relevant regulatory requirements has objectively raised the compliance threshold for custody business, prompting the industry to gradually transition to an independent third-party professional custody model. (2) Regulatory Reconstruction and Decentralization Mandate After the Madoff Incident In December 2008, the exposure of the Ponzi scheme implemented by Bernard Madoff through his controlled brokerage firm became a direct catalyst for the reconstruction of regulatory oversight in fund administrative services. According to an investigation report released by the Office of the Inspector General of the U.S. Securities and Exchange Commission (SEC) in 2009, the core structural flaw of the scheme was that the manager simultaneously controlled investment management, fund administration (valuation and accounting, share registration), and asset custody functions, forming a completely closed operational system lacking independent third-party supervision. Specifically, Madoff acted as an investment advisor while self-custodying through affiliated brokers and did not use an independent third-party administrator for net asset value calculations, instead falsifying transaction records through an internal accounting department. This incident provided a historical reference for subsequent regulatory rules aimed at preventing "excessive concentration" risks. Subsequently, the SEC, reflecting on the risks highlighted by the Madoff case, revised the custody rules (Rule 206(4)-2) in 2009 to strengthen independent third-party verification requirements. In October 2022, the SEC proposed the "Investment Advisor Outsourcing Service Regulatory Rule" (Rule 206(4)-11), intending to establish a due diligence framework for outsourcing, requiring investment advisors to assess the risks of service providers and orderly termination arrangements, although this proposal was officially withdrawn in June 2025. Under the current regulatory framework, first, investment advisors must conduct due diligence on outsourcing service providers and continuously monitor them to ensure they have the capability to perform their functions; second, according to the Investment Advisers Act and custody rules, client assets must be held by independent qualified custodians, and self-custody must undergo strict scrutiny; third, advisors must establish risk mitigation measures, considering alternative solutions in the event of service provider defaults, leading to a trend of decentralized delegation in practice. (3) Market Structure Under Decentralized Regulatory Logic The aforementioned regulatory framework has shaped a decentralized pattern in the U.S. fund administrative services market characterized by "low concentration and multiple coexistence" through institutional design rather than market competition: Decentralized Competitive Landscape of the Fund Administrative Services Market Regulatory compliance requirements have prompted leading asset management firms in the U.S. to adopt a multi-service provider strategy to meet business continuity regulatory requirements. Taking BlackRock as an example, according to its annual report submitted to the SEC, the company has allocated its funds to multiple custodians and administrative service providers, including State Street Bank, BNY Mellon, JP Morgan, and Citibank, ensuring that "a single service provider does not represent a concentration risk that could materially affect the company's operations." Institutions such as Bridgewater Associates and Blackstone also adopt a dual or multi-track model with primary and secondary service providers to meet compliance requirements that "core functions must not be overly concentrated." Separation of Custody and Administrative Functions Regulatory agencies, through the Dodd-Frank Act and subsequent rules, have effectively promoted a dual market structure of "concentrated custody and decentralized administration." Although large banks occupy a significant share of the asset custody market due to their status as systemically important financial institutions, independent third-party institutions have rapidly emerged in the fund administrative services sub-market through mergers and acquisitions This structure stems from the regulatory cautious attitude towards the conflict of interest between custodians and administrative service providers: when banks act as custodians, their simultaneous provision of administrative services must undergo stricter independence reviews, creating institutional market space for specialized administrative service providers. (4) Risk Event-Driven Pulsatile Industry Growth The expansion of the U.S. fund administration service industry exhibits significant step-like pulsatile characteristics, with each growth peak directly related to regulatory tightening following major risk events: First Pulse (2008-2012): Following the Madoff incident and the financial crisis, the Dodd-Frank Act and the 2009 custody rule revisions effectively increased the compliance costs and operational risks of self-administration models. Coupled with the enhanced due diligence standards of institutional investors, this collectively pushed alternative asset management firms to turn to independent third-party services. This gave rise to the industry consolidation wave from 2012 to 2015, where SS&C Group rapidly expanded through the acquisition of Global Operations and Citigroup's alternative investment services, with market M&A transaction volumes reaching a peak. Second Pulse (2020-2021): During the COVID-19 pandemic, the operational interruption risks caused by remote work became prominent, prompting regulators to further strengthen business continuity requirements. This led to a new round of industry consolidation from 2021 to 2024, where independent third-party institutions continuously enhanced service capabilities through mergers and acquisitions, forming a competitive landscape that stands in opposition to bank-affiliated firms. Overall, the decentralized pattern of the U.S. fund operation outsourcing market is not a result of natural monopoly, but rather the outcome of the gradual improvement of the regulatory framework driven by risk events and the concurrent advancement of market practices. By strengthening the independence of custodial functions, preventing excessive reliance on a single service provider, and mandating the establishment of business continuity backups, regulatory agencies have substantially increased the compliance costs and operational risks of concentrating all core functions in a single entity, promoting the industry towards diversified competition among multiple service providers and specialized division of labor. Outsourcing service providers themselves need to meet specific risk control requirements, including strict information security and risk control management models for client information and data, as well as the outsourced business process handling systems. In the fund industry, processes such as accounting, valuation, and fund clearing, while critical, do not belong to core operational links. The outsourcing of these processes requires not only scientifically reasonable business handling procedures but also ensures the security of business data. To this end, outsourcing service providers generally establish a series of internal control and external control mechanisms internally to fundamentally enhance the risk management of outsourced business processes. Through these measures, fund management companies can ensure the security of their business data is maintained. 2.2.3 Comparison of Development between China and the United States: The Current Macroeconomic Environment in Our Country is Highly Similar to the United States in the 1970s and 1980s, Providing Conditions for Development The transformation of the macroeconomy and the reform of interest rate marketization have created a similar market environment. The United States experienced a period of stagflation in the 1970s, with the CPI year-on-year growth rate peaking at 12.3% in December 1974. Subsequently, under tightening policies, market interest rates rose sharply, while the Q regulation limited the upper limit of bank deposit interest rates, leading to the phenomenon of "financial disintermediation." From 1975 to 1980, the total scale of mutual funds in the United States grew from $45.9 billion to $134.8 billion, with the proportion of money market funds jumping from 8% to 57%. Currently, our country is also in a period of economic structural transformation, with the one-year fixed deposit rate of state-owned major banks dropping to 0.95% in May 2025, officially falling below the 1% mark, and the trend of "deposit migration" gradually becoming apparent. This has a high degree of similarity to the background of financial disintermediation in the United States in the 1970s, providing a macro soil for the development of fund administrative services. The leap in asset management scale has spawned demand for specialized services. The assets of U.S. mutual funds rapidly expanded from $0.13 trillion at the end of 1980 to $1.06 trillion in 1990, and further grew to $6.96 trillion by 2000. The scale of public funds in our country has grown from 32.83 trillion yuan at the end of 2024 to 37.71 trillion yuan at the end of December 2025, with an annual increase of 4.89 trillion yuan, a growth rate of 14.9%. There are 165 public fund management institutions in the country, with the number of products exceeding 12,000. Similar to the United States in the 1980s, our asset management industry is undergoing a transformation from "quantitative expansion" to "qualitative improvement," with increased operational pressures faced by managers in valuation accounting, share registration, and other areas. Pension system reform and the entry of long-term funds into the market provide a stable source of funding. The United States established the IRA system through the Employee Retirement Income Security Act of 1974, and the 401(K) provision was created in the Internal Revenue Code of 1978. By 1990, mutual fund assets accounted for 22% of IRA assets, and about 7% of mutual funds in DC plans; by 2000, the proportion of mutual funds in DC plans rose to 30%, and the proportion of mutual funds in IRAs continued to grow, with the overall trend of mutual fund assets held in retirement accounts on the rise The construction of the third pillar of China's pension system is accelerating. By the end of November 2024, the number of personal pension accounts opened will reach 72.79 million. After the system is promoted nationwide in December 2024, the number of accounts opened will exceed 150 million by June 15, 2025. By the end of 2023, the total scale of China's three-pillar pension system reached 13.75 trillion yuan, accounting for approximately 10.6% of GDP, while the total pension amount in the United States during the same period was 40.7 trillion USD, accounting for 147% of GDP. The nature of China's pension funds is shifting from "short-term funds" to "long-term funds," providing a funding environment similar to that of the United States in the 1980s for the fund administrative service industry. The complexity of fund products and the specialization of divisions are driving an increase in the penetration rate of outsourcing services. In the 1980s, the rise of actively managed funds in the United States saw the proportion of equity funds increase from 23% in 1990 to 57% in 2000. Currently, China's fund product system is becoming increasingly complex. According to data released by the Asset Management Association of China, by the end of 2025, the scale of bond funds will reach 10.94 trillion yuan, and the scale of equity funds will grow by 35.93% year-on-year, with the proportion increasing by 2.48 percentage points to 16.05%. In terms of private equity funds, by the end of 2024, the number of private securities investment funds using outsourcing services will reach 83,200, accounting for 99.25% of the total number of private securities funds. This trend is consistent with the increase in the penetration rate of outsourcing services during the rapid development of mutual funds in the United States, indicating that China's fund business outsourcing market is maturing rapidly. 1 Zhang Ming. Major Challenges and Response Strategies for the Development of China's Pension Finance [J]. Financial Think Tank, 2025(3):105-150. Finally, the improvement of capital market systems and the construction of a multi-tiered market have laid the foundation for the industry. The opening of NASDAQ in the United States in 1971 marked the formation of a multi-tiered capital market, with the implementation of a registration system and the growth of institutional investors promoting the standardization of fund administrative services. China's registration system reform has been fully implemented, with the establishment of the Sci-Tech Innovation Board and the Beijing Stock Exchange. Similar to the United States in the 1980s, China's capital market is undergoing a transformation from retail to institutional, with the proportion of institutional investors continuously increasing, gradually raising the requirements for the professionalism and compliance of fund administrative services, providing institutional support for industry development. 2.3 State Street Case Analysis: Specialized Transformation and Technological Investment Forge a Global Leader in Custody Outsourcing 2.3.1 Strategic Transformation Path: Transitioning from a Universal Bank to a Custodian Bank Achieves Industry Leadership State Street Corporation's development history can be traced back to 1792, making it one of the oldest financial institutions in the United States. It is currently the largest custodian institution and one of the largest asset management institutions globally. The United Bank, established in 1792, is the predecessor of State Street Corporation. In 1865, the United Bank was renamed Boston National United Bank, and in 1891, State Street Trust Company was established as a subsidiary, which later formed State Street Bank and Trust Company through multiple mergers In 1969, State Street Corporation was officially established under Massachusetts law. Headquartered in Boston, Massachusetts, State Street Corporation employs over 40,000 people and operates in more than 30 countries and regions worldwide, serving institutional investors across over a hundred markets. Through a series of investments, mergers, and internal restructuring, State Street Corporation has developed over two centuries from its initial banking operations into a leading global investment management and services provider. State Street Bank entered the fund custody business early on, officially transitioning to a custodian bank in the 1970s, providing outsourcing services for mutual funds. Since the passage of the Investment Company Act of 1940 in the United States, which explicitly required fund managers to entrust fund assets to third parties for custody, the legal status of custody was clarified. It was at this time that State Street Bank began its custody business and became the first bank to engage in custody services. In fact, due to the relatively small scale of mutual funds in their early days, the asset custody business was not prioritized, and State Street Bank's operations remained limited to traditional commercial banking lending services, making it an ordinary institution among thousands of banks. During the 1970s, against the backdrop of the relaxation of deposit and loan interest rates in the United States, competition among banks intensified. To reduce reliance on interest income, William A. Ogden, as the leader of State Street Corporation, decisively decided to transform from a universal bank into a specialized custodian bank. It was also at this time that State Street began to provide services for the financial assets it was custodian of, and over the following decades, it undertook a series of acquisitions and divestitures of non-core businesses, becoming an industry leader. In fact, by the late 1970s, with the entry of long-term funds such as pensions into the market, State Street Corporation began to pay attention to the fund market and participated in the construction of the backend system for the first mutual fund in the United States. With the rapid development of the U.S. mutual fund industry, State Street Corporation's related businesses were also promoted, beginning to provide mutual funds with trading platform technology, trade record keeping, and position analysis services, as well as value-added services such as fair value settlement of assets and investment report publication, marking the beginning of State Street Bank's fund administration service business development. Starting in the 1980s, State Street Bank increased its investment in technology to transform into a custodian bank, fully enhancing its fund operation outsourcing service capabilities. Since asset management product fund administration services require a robust information technology system to support efficient operations in sales, payments, share registration, and valuation accounting, as well as a high level of risk control, State Street Corporation gradually reduced its traditional commercial banking operations starting in 1980 and increased its investment in technology to improve the efficiency of securities and mutual fund management and custody processing. In 1999, State Street Corporation sold its retail banking business to Citizens Financial Group, fully transforming into a custodian bank, enhancing its professional level in the custody industry, and securing a place in the fund administration service industry. In 2002, through the acquisition of Deutsche Bank's global securities services business, State Street Corporation further solidified its leading position in the industry In recent years, State Street Bank has strengthened its parallel development of asset management and investment services through mergers and acquisitions, further enhancing its professional service capabilities in fund administration. In the process of fully transforming into a professional custodian bank, State Street Corporation has continuously strengthened its asset management business layout through strategic acquisitions, allowing asset management and custody services to develop in parallel, mutually promoting each other and jointly driving the growth of outsourcing business. For example, in 2002, State Street Bank completed a cash acquisition of International Fund Services (IFS) for $80 million. IFS is a leading provider of fund accounting and administration, securities trading support, and hedge fund operational services. In recent years, State Street has acquired the investor services business of Brown Brothers Harriman, the outsourced trading business of CF Global, as well as the overseas custody business of Mizuho Financial Group and the real-time inflation analysis business of PriceStats. Through continuous acquisitions, State Street has expanded its custody asset scale from several billion dollars in 1970 to $46.6 trillion by the end of 2024. State Street Corporation has gradually formed a symbiotic relationship between investment services and asset management business, where custody services include asset custody, operations, and a range of outsourced value-added services, while asset management business includes investment management and investment research. According to data disclosed in State Street Bank's annual report, as of the end of 2024, the scale of assets under custody and administration for State Street Corporation was $46.6 trillion, a year-on-year increase of 11.48%. From the current operational situation, State Street Bank's business is mainly divided into two major business lines: One is the investment services line, which provides investment services to institutional clients through State Street Investment Services, State Street Global Markets, State Street Alpha, and State Street Digital. Clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, etc. The products under the investment services business line include: custody, accounting, regulatory reporting, investor services, performance and analytics, and other back-office outsourcing services; while middle-office services include investment records, trade management, loans, cash, derivatives and collateral services, record keeping, client reporting, and investment analysis. Additionally, there are operational outsourcing for investment managers and alternative investment managers, financial data management support for institutional investors, foreign exchange, brokerage and other trading services, and securities finance. Besides the fees charged according to traditional agreements, State Street Bank also offers billing for individual services The investment services line is the segment of State Street that undertakes fund operation outsourcing, primarily managed by State Street Bank and Trust Company. Secondly, the investment management business line provides core and enhanced indices, multi-asset strategies, active quantitative and fundamental active capabilities, as well as alternative investment strategies for equities, fixed income, and cash assets, covering the risk/return spectrum of these investment products. State Street's asset management scale is currently weighted towards index strategies. In addition, State Street offers a wide range of services and solutions, including ESG investments, fixed income and fixed contribution products, and global trust solutions. The investment management business line is the segment of State Street that undertakes front office operations, primarily managed by State Street Global Advisors. In terms of revenue structure, State Street continues to strengthen the dominance of non-interest income, adhering to its position as a custodian bank. State Street Bank achieved USD 10.156 billion in 2024, a 7.13% increase from USD 9.480 billion in 2023. This accounted for 78.12% of total revenue, remaining stable compared to 2023. Service fee income refers to the revenue generated from the aforementioned investment services line providing a range of fund operation outsourcing services to clients, including core custody, accounting, reporting, and management services for mutual funds, hedge funds, pension products, etc. Further analysis shows that service fee income is divided into two categories: back-office service fee income and middle-office service fee income, with the former accounting for a higher proportion. By the end of 2024, State Street Bank's back-office and middle-office service fee income reached USD 4.633 billion and USD 383 million, respectively, reflecting that the service fee income primarily from back-office operations demonstrates State Street Bank's commitment to its position as a custodian bank. 2.3.2 Moat Analysis: Brand Accumulation, Technological Investment, and Risk Control System Build Core Competitiveness From the perspective of the development status of fund administrative services in the United States, the prosperity of custody business provides broad market opportunities for fund outsourcing, with State Street Bank ranking first in the industry for fund administrative services. According to the global custody services market report published by third-party organizations such as Cognitive Market Research and SkyQuest for 2024-2025, State Street Bank is listed among the top five custodians in the U.S. alongside Bank of New York Mellon, JP Morgan, Citibank, and Northern Trust. By the end of 2024, State Street Bank continues to maintain its leading position in the ETF administrative management field in the U.S. According to the ETF Express US Awards held in October 2024 in New York, State Street Bank swept five awards for Best Overall ETF Administrator, Best Equity ETF Administrator, Best Fixed Income ETF Administrator, Best ETF Back Office Technology Provider, and Best ETF Middle Office Technology Provider, all ranking first in the U.S. industry In the field of fund operation technology services, Charles River Development, a subsidiary of State Street Bank, won two technology awards for Best Cloud-Native Front Office Solution and Best Front Office Data Management Tool at the Fund Intelligence Operations & Services Awards held in New York in February 2024. (1) Professional services create a unique strategic brand and capture market share Asset custody business originated from fund custody and has since evolved into a series of value-added services, including fund business outsourcing. State Street got on the fast track of fund development early on and has continuously refined its brand over the years. The first mutual fund in the United States was born in Massachusetts, and State Street Bank, also headquartered in Massachusetts, was prepared to develop fund custody services as early as the 1940s, laying the foundation for the subsequent development of outsourcing services. Although outsourcing was still an emerging and relatively unknown market at that time, State Street foresaw its potential in its transformation strategy in the 1970s and became the first bank to focus on custody outsourcing services. In 1978, with the launch of the U.S. 401(k) plan, the pension market began to grow rapidly, and the mutual fund industry experienced explosive growth. Against this backdrop, State Street gradually accumulated a good reputation in the field of fund custody. Secondly, State Street has a complete strategic framework focused on custody business. With the aforementioned first-mover advantage, continuous focus on outsourcing services, and strong technological capabilities, State Street ultimately established a leadership position in the industry. In the mid-1970s, State Street transitioned from a full-service bank to a specialized custody bank, with a strategy that included reducing traditional commercial banking operations and investing over 25% of annual operating expenses in technology to enhance large-scale transaction settlement capabilities. Over time, State Street gradually divested traditional commercial banking operations and shifted its focus to enhancing custody service capabilities. This strategic adjustment laid the foundation for State Street's resilience during the banking industry's downturn at that time, and subsequently, State Street gradually established a foothold in the fund business outsourcing sector, leveraging the growth of the U.S. mutual fund market. Additionally, through continuous mergers and acquisitions, State Street expanded its range of services and capabilities, further increasing the influence of its outsourcing business by entering different regional markets, injecting sustained momentum into its growth. Fund administration services are closely linked to asset custody, and asset custody is primarily focused on scalability and specialization. Therefore, business mergers and acquisitions have become a means to rapidly enhance strength and fill gaps. As a result, the market concentration in the overseas custody service industry is relatively high due to ongoing mergers and acquisitions, with a few custody institutions dominating the market. For example, in the United States, the top five custody institutions hold more than half of the market share in custody and operational outsourcing services. Through a series of precise acquisitions, State Street expanded its fund management segment within custody and securities operations, further enhancing its specialized platform and service brand, and quickly became a global leader in fund outsourcing services (2) Expand revenue through increased investment in information technology from multiple dimensions Developing a cutting-edge technology custody platform is crucial for fund outsourcing business, and State Street Bank has been continuously increasing its investment in technology in recent years. The outsourcing industry is not just a service industry; in fact, it can be seen as a technology-intensive industry. The reason is that building a backend business system that is accurately valued, quickly delivered, strictly monitored, and smoothly interactive is the core competitiveness of outsourcing services. From the development history of State Street Bank, information technology has played a key role, with a significant proportion of the companies it has acquired being technology firms. It also insists on maintaining its industry-leading information technology advantage as a strategic priority. By the end of 2024, State Street Bank's investment in IT reached $1.829 billion, accounting for 14.07% of total revenue ($13 billion) and 37.84% of its operating expenses (total expenditures minus employee compensation). This demonstrates State Street Bank's emphasis on information technology. State Street's digital development strategy can be divided into three main stages since the early days of business transformation. In the early stage, the company focused on enhancing its technology systems, particularly improving Straight Through Processing (STP) and the global customer service network capabilities. STP is key to the internal operations of custody banks; it is based on the standardization of processes and data, which can improve internal operational efficiency, reduce risks, and achieve economies of scale. To this end, State Street has established multiple custody operation platforms, including a process-based valuation system, an electronic payment system, and a fully functional custody operation platform. With the rapid development of financial technology, State Street actively utilizes cutting-edge technologies such as big data, artificial intelligence, and blockchain to develop its DataGX product, providing clients with comprehensive end-to-end data management solutions. In addition, State Street has established several big data analysis platforms, such as portfolio and risk analysis platforms, customer profiling platforms, and alternative data research platforms, and has utilized machine learning and natural language processing technologies to create a research management platform. In 2016, the company launched Project Beacon, aimed at building a digital interconnected platform that provides one-stop services from front office to back office, achieving straight-through integrated data processing and empowerment. By continuously deepening and broadening its service scope, State Street Bank is expanding its business range and forming multidimensional revenue growth. (3) Build a robust risk control system to ensure the stable and long-term operation of outsourcing business State Street Bank has implemented a multi-layered supervision mechanism, including a board of directors, risk management committee, internal audit, and daily business inspections, to assess and monitor the risk changes of outsourced businesses from different perspectives. Through the committee system, State Street Bank has achieved sound asset utilization, unified position scheduling and management, effectively preventing liquidity and operational risks caused by mismatched durations. In addition, State Street Bank places great importance on unexpected events such as system failures, fires, or earthquakes. To ensure business continuity, State Street Bank formulates detailed business continuity plans annually and conducts practical emergency drills every six months to test and improve the effectiveness of these plans. The excellent risk control capabilities also enable State Street to maintain a steady course in fund administration services. III. Recommendations for the development of fund business outsourcing: Professional services and enhanced transparency are breakthrough directions 3.1 Providing a comprehensive range of professional services is key to breaking the deadlock, and existing institutions still have room for improvement Why focus on fund business outsourcing at this point? Looking back at the current development stage of China's fund industry, we can see the trajectory of development in the U.S. during the 1970s and 1980s. From a macro perspective, the transition from non-standard to standard assets and the expansion of asset management scale constitute the foundational environment for the growth of outsourcing service demand. With the end of the transition period for new asset management regulations, traditional non-standard assets such as bank wealth management and trust plans are continuously transitioning to standardized securities assets, and the scale of net asset value products such as public funds and private equity funds is steadily expanding. By the end of 2025, the management scale of domestic public funds is expected to exceed 37 trillion yuan, with over 80,000 private equity funds. The increasing complexity of asset management products and the frequency of valuation calculations raise higher demands for backend operational capabilities. Against the backdrop of the emerging trend of "deposit migration," the process of residents transferring wealth to standardized financial assets is accompanied by an increase in product quantity and stricter compliance requirements, making professional operational outsourcing services a potential infrastructure to support the intensive development of the industry. The policy side continues to release positive signals, creating favorable conditions for business promotion. In 2022, regulatory authorities clearly stated that "the outsourcing of backend operations for public funds will transition from a pilot program to a regular practice," marking a shift in policy orientation from cautious piloting to standardized development. The 2025 revised draft of the "Administrative Measures for Securities Investment Fund Custody Business" further clarifies the functional boundaries between custody and outsourcing, providing institutional space for the application of specialized custody models for private equity funds. The improvement of the regulatory framework gradually eliminates the compliance uncertainties that previously constrained business development, reducing institutional concerns for fund managers when choosing outsourcing services, and providing clearer policy support for the diversification strategies of market participants The reform of interest rate marketization and the pressure to reduce costs and increase efficiency are driving institutions to re-examine their operational models. As the reform of public fund fee rates continues to advance, the downward trend in management fee rates has a profound impact on the industry's profit model, prompting institutions to explore efficiency improvement opportunities from the operational end. For small and medium-sized fund management companies, building a complete operational team faces practical constraints such as high fixed cost investment and insufficient economies of scale. By adopting an outsourcing model, fixed costs can be converted into variable costs, which helps concentrate resources on the core investment research aspects during the initial business phase. Even large institutions with self-building capabilities may reconsider their operational strategies based on a full cost-benefit analysis after evaluating the marginal costs of system upgrades, personnel expansion, and outsourcing services, leading to differentiated choices. Demand-side dynamics exhibit structural differentiation characteristics. Private securities investment funds, due to their high product standardization and clear regulatory requirements, have become the segment with the highest penetration rate of outsourcing services, with over 90% adoption of share registration and valuation accounting services. The main driving force comes from considerations of compliance cost efficiency and the rigid demand for regulatory compliance. For bank wealth management subsidiaries and newly established public institutions, outsourcing needs are more reflected in the capability supplementation and rapid business development demands during the initial phase of net value transformation, aiming to shorten the product launch cycle by leveraging external mature operational systems. Securities firms' asset management and private equity institutions, based on considerations such as business synergy and risk isolation, are attempting outsourcing or seeking customized solutions in certain areas. Various institutions, based on their resource endowments, development stages, and risk preferences, form a continuous spectrum of choices from "full-process self-building" to "core business outsourcing," driving the outsourcing service market towards a multi-layered and specialized direction. From the supply side, major institutions in the current market typically focus only on specific areas, leading to insufficient outsourcing service capabilities. Additionally, low business support and information security issues also deter service providers. Due to the uniqueness of China's financial industry, major institutions specialize in specific fields, resulting in certain deficiencies in other aspects. For example, custodial banks have traditional fund accounting experience but lack experience in investment management services; while securities firms possess relatively comprehensive back-office operational experience, they still fall short in the rigor of risk control systems compared to custodial banks; fund management companies currently do not regard back-office operations as core business, making it difficult to become independent operational outsourcing service providers in the short term; third-party institutions have a leading advantage in outsourcing technology but still have room for improvement in understanding financial business. Furthermore, under the operational outsourcing model, outsourcing service providers have significant shortcomings in supporting the flexibility of fund companies' businesses, which also restricts the development of outsourcing services. Lastly, there are currently no comprehensive regulations in China to supervise outsourcing information, and the market lacks outsourcing service providers that offer a complete set of operational solutions, leading to concerns about information security. For current market participants, large fund companies establish specialized service subsidiaries based on mature operational capabilities. Although they have the advantage of service adaptability, regulations have set clear qualification thresholds and compliance requirements for this path. According to the feedback from the China Securities Regulatory Commission in January 2024 regarding the establishment of operational service subsidiaries by Huaxia Fund and in September 2023 regarding the establishment by Chuangjin Hexin Fund, applicants must meet financial conditions such as having net assets of no less than 600 million yuan and an average management scale of actively managed equity public funds of no less than 20 billion yuan over the past two years, and must clarify the definition of business scope, specify personnel transfer plans, and establish effective risk isolation mechanisms In addition, subsidiaries must independently equip personnel, systems, and locations, and can only commence actual operations after passing on-site inspections by the local securities regulatory bureau. In June 2025, the first operational service subsidiary established by Huaxia Fund was officially approved. Considering that currently only one institution has been approved and its business scope is mainly limited to operational services for commercial banks and wealth management subsidiaries, this model still requires a long cultivation period in terms of customer expansion, standardization improvement, and input-output balance, and its commercial maturity verification is yet to come. Apart from public fund operational service subsidiaries, traditional financial institutions such as brokerages and banks are encountering strategic opportunities against the backdrop of continuous breakthroughs in public fund management scale and expansion of product numbers. Relying on their existing fund custody business foundation and customer advantages, their operational capabilities can naturally extend into the outsourcing service field, and they are expected to become the core service entities in the outsourcing market in the future. China's public fund custody market maintains steady growth, with vast market space providing valuable experience for banks and brokerages in fund business outsourcing. As of the end of the fourth quarter of 2025, the number of public funds under custody in China reached 13,417, with a total custody asset scale valued at 36.277020 trillion yuan, an increase of 12.75% compared to the end of the fourth quarter of 2024; by the end of the second quarter of 2025, the industry's total custody income was 13.632 billion yuan, a quarter-on-quarter decrease of 1.65%. In terms of custodian types, banks lead in both the number and scale of public fund custody, with a total of 24,472 funds under custody and a custody scale of 36.21 trillion yuan, accounting for a total market share of 95.13%. Brokerages, on the other hand, have a relatively smaller scale, with a total custody scale of 1.84 trillion yuan, accounting for a total market share of 4.84%. Combining this with the previous "Table 2 Ranking of Fund Scale and Number of Services by Various Institutions," institutions with large private fund custody scales also tend to have relatively large public fund custody scales, such as Guotai Junan, CITIC Securities, Huatai Securities, and Industrial and Commercial Bank of China. These institutions have accumulated rich back-office operational experience in custody business, thereby providing strong support for public funds and even outsourcing services for other types of funds. Compared to banks, brokerages and funds have formed a synergistic relationship, seizing the outsourcing service market by providing professional service capabilities. Brokerages are relatively leading in the private fund outsourcing service industry, with advantages in fund scale and number. The reasons mainly include three aspects: first, some brokerages, as participants in fund custody and settlement business, have accumulated very rich service experience, established cooperative relationships with most leading funds, and formed outsourcing business operation teams Forming a team of professionals across multiple lines such as market, customer service, product, operations, and IT, for example, Guotai Junan and China Merchants Securities; secondly, this part of the securities firms will position outsourced business as a channel for institutional business, integrating the company's wealth management, research, and other business segments to create a synergistic push, which in turn further drives the growth of outsourced business; thirdly, some securities firms have established brands and market recognition in the private equity custody outsourcing business, which helps them gain client trust in outsourcing services. Therefore, summarizing the development of both securities firms and banks and referencing the moat of State Street Bank's fund outsourcing business, it can be seen that the core of outsourcing business is not to provide a certain system support for fund companies, but to provide a complete set of professional services. For banks, comprehensive services are a key strategy for increasing revenue and attracting clients. Professional banks should not only provide basic outsourcing services but also offer comprehensive one-stop solutions based on client needs. By implementing the "cross-selling" model of custody banks, it can not only create additional value-added revenue but also effectively enhance client satisfaction and loyalty. For securities firms, the development of fund operation outsourcing business is mainly limited by the service level and risk management capabilities of fund service institutions. To improve service levels, fund service institutions should draw on the experiences of fund custody services and private equity outsourcing services, strictly adhere to fund operation standards, and comprehensively optimize and upgrade aspects such as business structure, team building, technology platforms, operational processes, data protection, risk control, and customer service. Finally, independent third-party institutions also hold a place in the fund business outsourcing industry and are expected to take on more responsibilities in the future. Independent third-party outsourcing companies represented by Hang Seng Technology, Jinzheng Technology, and Yingshisheng have the advantage of providing greater business flexibility, which is reflected in the high degree of service customization, able to provide a complete set of customized service solutions based on the specific needs of fund companies, mainly meeting the specific needs of large and medium-sized fund companies; on the other hand, the market environment and regulatory policies often change, and due to the high proportion of outsourced personnel in these companies, they can quickly adjust business line structures to respond rapidly to changes, ensuring that fund companies can respond in a timely manner by adjusting service content and processes. In addition, due to the independence of their business, independent outsourcing companies help fund companies avoid potential conflicts of interest, ensuring transparency and fairness in business operations. Looking ahead, independent third-party institutions may form differentiated competition with licensed financial institutions, steadily enhancing service capabilities and quality, and gradually increasing market penetration. 3.2 Development Path Optimization: Enhancing Transparency, Independence, and Flexibility Determines the Degree of Service Differentiation The development of fund business outsourcing requires collaborative efforts from all parties and continuous improvement of laws. When fund companies choose to outsource operational processes, they must clarify whether the core accounting entity will change and whether some fiduciary responsibilities need to be transferred to the outsourcing service provider. At the same time, the cooperation mechanism between market infrastructure such as exchanges, registration companies, foreign exchange trading centers, and other market participants and outsourcing institutions also needs to further clarify whether these institutions can directly provide necessary data and information to outsourcing institutions And what legal or business basis should this information sharing be based on? Currently, the regulations in the field of fund administrative services are yet to be improved, and there is a gap with the pace of market development. When promoting business development and exploring new business models, outsourcing service providers need to maintain active, proactive, and close communication with regulatory agencies to ensure a balance between compliance and innovation. In response to the current immature pricing mechanism for outsourcing services and the differences in domestic and international evaluation standards, service institutions should focus on building three core capabilities: first, establish a standardized information disclosure mechanism by regularly publishing detailed reports covering service scope, performance indicators, cost details, and risk warnings, supplemented by clear service terms and change notifications to bridge the differences in financial understanding between supply and demand sides; second, improve the independence assurance system by establishing effective isolation from four dimensions: personnel positions, operational venues, system development, and institutional regulations, along with strict information confidentiality systems and technical protection measures to form clear responsibility boundaries and risk firewalls; third, enhance service flexibility and scalability by drawing on the experience of State Street's open data platform and personalized customization tools, providing customized service options and configurable data analysis tools to meet institutional investors' differentiated needs for precise decision-making and operational efficiency, thereby better adapting to market changes and regulatory evolution. It is worth noting that the development of domestic fund business outsourcing may differ from overseas in the context of the rapid development of AI technology: overseas markets have experienced a gradual evolution from business scaling to internet technology iteration, while China is currently facing a unique window period of explosive development in AI infrastructure. If AI technology can effectively reduce the marginal costs of standardized services such as valuation accounting and share registration, fund operation outsourcing may break through the traditional economies of scale threshold, presenting stronger network effects and entry attributes—namely, establishing strong customer stickiness through high-frequency, essential operational services, thereby directing traffic for comprehensive financial services such as wealth management and investment research output. However, the realization of this vision relies on the deep application of AI in the field of compliance technology and the synchronous adaptation of regulatory frameworks. In the short term, the construction of specialized service capabilities and risk isolation mechanisms remains the foundation for the industry. For various institutions, the following are relevant development suggestions: (1) Brokerage firms: Leverage multi-license synergy and private equity client advantages to create a "custody +" comprehensive service ecosystem. The core competitiveness of brokerage firms in conducting fund operation outsourcing lies in their ability to coordinate the entire business chain. Leading brokerage firms can further connect the trading execution (brokerage business), product distribution, and investment and financing needs of managers through the accumulation of private equity client bases from custody services, forming a comprehensive service closed loop of "custody + trading + research + distribution." It is recommended that brokerage institutions deepen their layout from three aspects: first, strengthen technological empowerment by enhancing the automation level of valuation accounting and risk warning capabilities through financial technology means; second, expand service boundaries by extending the service scope from basic valuation clearing to the entire lifecycle stages such as manager registration and filing, product filing guidance, new regulation interpretation, and investment performance analysis; third, improve cross-border layout by seizing opportunities in cross-border businesses such as QFLP, building an overseas fund administrative outsourcing service brand to meet the global operational needs of managers. It should be particularly noted that brokerage firms conducting outsourcing businesses must strictly adhere to the requirements of the "Guidelines for Fund Business Outsourcing Services (Trial)," and when providing custody services simultaneously, a dedicated team and business system should be established Establish necessary business isolation and firewall systems to prevent conflicts of interest and information leakage risks. (2) Banking System: Relying on custody scale and capital clearing advantages, deeply cultivate the public offering and wealth management subsidiary client base. Commercial banks have inherent advantages in the field of fund administrative services. It is recommended that banking institutions focus on structural opportunities during the net value transformation window: first, in response to the needs of bank wealth management subsidiaries, leverage comprehensive service capabilities of "custody + outsourcing + value-added" to provide integrated solutions such as accounting, asset valuation, and registration, while utilizing the sales channel advantages of the parent bank to provide distribution support; second, output macro strategies and industry research results through the "custody + investment research report" module to enhance customer stickiness; third, improve the two-tier service system, establishing a professional team at the head office while authorizing key branches to carry out localized outsourcing operations to enhance response efficiency. Banking institutions need to pay special attention to the independence requirements of outsourcing and custody businesses. When conducting both types of businesses simultaneously, effective isolation mechanisms should be established in terms of business teams, system permissions, and physical locations to ensure that fund assets and client assets are independent of the proprietary property of the outsourcing institution. (3) Independent Third Parties: Relying on technological empowerment and flexibility advantages, filling niche markets and long-tail demands. Independent third-party fund administrative service institutions have unique value in differentiated positioning and customized services. These institutions are not bound by traditional custody business, allowing them to provide higher service flexibility and customization, mainly covering small and medium-sized private equity funds, family offices, and other long-tail client groups. International independent service providers represented by SS&C form differentiated competitive advantages in the hedge fund and private equity market through proprietary software platforms and professional administrative management capabilities; domestic technology service providers such as Jinzheng Co., Ltd. provide TA system, valuation accounting, and capital clearing system development and upgrade support for bank custody operation outsourcing. It is recommended that independent third-party institutions focus on niche tracks: first, provide flexible project-based valuation accounting and post-investment management services for the non-standard characteristics of private equity funds, addressing personalized needs such as long duration and complex cash flow structures; second, leverage system development advantages to provide lightweight SaaS outsourcing solutions for small and medium-sized financial institutions, reducing their one-time investment in system construction; third, strengthen the risk control attributes of independent third parties, providing risk isolation and compliance endorsement for managers through physical isolation and organizational structure design. According to regulatory requirements, independent outsourcing institutions should establish strict firewall systems and business isolation systems, effectively implementing internal control systems such as information isolation to prevent the transfer of benefits. (4) Fund System: Leverage the synergy advantages of investment research and operations to create an integrated solution of "operations + allocation." For technology subsidiaries (operational service subsidiaries) established by fund companies, it is recommended to fully leverage the composite endowments of the parent company's investment research capabilities and product creation experience, distinguishing from the traditional custody bank's pure backend positioning, by outputting an integrated solution of "operational custody + investment research support + asset allocation," accurately addressing the capability supplement needs of bank wealth management subsidiaries and newly established public funds in the early stages of net value transformation; at the same time, it is necessary to strictly adhere to regulatory requirements for net assets, achieving a transformation from a cost center to a professional service institution through a lightweight platform model Uncertainty of market price fluctuations: The factors influencing capital market prices are numerous, including fluctuations in the macro economy, changes in the global economic situation, and fluctuations in investor sentiment, all of which may trigger stock price changes or affect the valuations of institutions such as brokerages and insurance companies. The performance of the non-bank financial industry is significantly affected by market prices and trading volumes. Uncertainty in corporate profit forecasts: The profitability of the securities and insurance industries is influenced by various factors, and there is a certain degree of uncertainty in the predictions regarding industry valuations and performance. Additionally, intensified internal competition within the industry may lead to deviations in forecast results. Technological updates and iterations: The rapid development of emerging technologies requires financial institutions to continuously keep up with and adapt to the pace of technological change. However, the accelerated pace of technological updates also brings high R&D investments and talent training costs, which may increase the operating costs of brokerages and insurance companies. At the same time, the outbreak of technological innovation carries a certain degree of uncertainty. Zhao Ran: Chief Analyst of Non-Bank and Forward-looking Research at CSC, Master of Applied Statistics from the University of Science and Technology of China, based in Shanghai. Member of the Financial Technology Research Team at Shanghai Jiao Tong University. Formerly a financial engineering analyst at CSC. Currently focused on research in the non-banking and financial technology sectors (supply chain finance, consumer finance, insurtech, blockchain, intelligent investment advisory/research, financial IT systems, payment technology, etc.), deeply involved in the digital transformation of various regulatory agencies and financial institutions as well as research on financial technology topics. Six years of experience in securities research. Second place in the Wind Financial Analyst (Financial Engineering) in 2018. Fourth and first place in the Wind Financial Analyst (Non-Bank Finance) in 2019 and 2020, respectively, and first place in the Sina Golden Qilin Non-Bank Finance Rising Analyst in 2020. He Jingwei: Researcher in Non-Bank Finance & Financial Technology at CSC Securities Research Report Title: "Overview of Fund Business Outsourcing Against the Background of Asset Management Expansion - Wealth Management Series No. 16" External Release Date: November 2, 2025 Report Issuing Institution: CSC Report Analysts: Zhao Ran SAC Number: S1440518100009 SFC Number: BQQ828 He Jingwei SAC Number: S1440525070007