Read the article and learn about:
- Why investment managers have increasingly chosen to outsource over the past 20 years
- Why outsourcing is not a ‘no brainer’ decision
- Whether the supposed benefits of outsourcing will ever actually materialize
Global Front Office Product Marketing
The reasons investment management firms have increasingly chosen to outsource their back and potentially their middle office operations over the last 20 years are numerous. Roughly 86% of banks, brokers and broker dealers outsource at least part of their middle and back office functions1, and from what I’ve seen, the outsourcing statistics are much the same for institutional asset managers. The market trend, benefits and justification for outsourcing is crystal clear, right? Well, before answering that, let’s take a moment to break it down.
As I see it, the top reasons firms outsource include:
- To focus on core competencies
- Free up existing resources for other purposes
- Create operational efficiency and reduce costs
- Reduce time-to-market
- Spread risk
For firms contemplating outsourcing, it’s a game-changing decision, and its impact on the front office should not go unaddressed. Once you go down this road, it becomes very difficult to turn back when you consider that all infrastructure and cost controls are moved externally. That is not to say that it can’t be “undone” – we’ve actually had several clients in the last two years that brought their overall position-keeping and investment book of record (IBOR) back inhouse because of the negative impact on their business from having these maintained externally.
The point is more that escalating market conditions, such as growth and proliferation of data, increased regulation, transparency demands and legacy technology, to name a few, are altering the required solutioning at play. Before embarking on this journey, firms need to realize that it is not the “no brainer” decision it is perceived to be by so many. For those that have already made the outsourcing decision, a checkpoint or reassessment may be in order, at minimum, to ensure current and projected growth targets will continue to be met as competition heightens.