Is Investment Operations Outsourcing right for your firm?
Why the surge in investment operations outsourcing?
Economic downturns in the last decade have impacted the way IT and operations budgets are allocated for nearly every organization. Likely, there will be lasting effects into the foreseeable future. Many companies are trying to balance the need for best in class technology with a tight budget.
The pressure to generate higher margins, maintain regulatory compliance and meet the demands of an ever-changing technological landscape is great for today’s asset manager. These items coupled with other strategic factors have led to an increase in outsourcing.
The answer for many is to outsource their investment management technology.
Competition for assets and greater attention to investment performance is driving asset managers to re-focus on their core competencies of product development and investment performance. Companies need to stick to what they are good at!
For the asset manager, maintaining or increasing profitability in turbulent markets has encouraged better matching of costs to revenues with a business model that migrates from a largely fixed cost to a more variable cost structure.
For asset managers with more complex products, industry best-of-breed technology is crucial. Simultaneously, the cost of acquiring and implementing products to support multiple asset classes, and for finding experienced, competent staff to develop processes and ensure regulatory compliance keeps rising.
While many investment managers have throttled back their IT investment during the reign of uncertainty of the past 12-18 months, the need for new or updated applications and systems development requirements have forged on.
With internal and external regulatory requirements expanding, firms are working to address internal workflow, risk management / measurement capabilities and OTC derivative processing. “Institutions aren’t waiting for regulation. They are driving the requirements of what managers need to provide and there is more emphasis being placed on a manager's infrastructure, avoiding headline risk and staying ahead of increased regulation.”These types of internal initiatives can fall flat without sound data management architecture in place.
How do you know your business is a good fit for outsourcing?
1. Do you have a solid reference data foundation?
2. Can you aggregate accurate, consistent data (virtually or physically)?
3. Do you have technological or operational challenges?
The Outsource Continuum in Figure 1 (click here for larger view) depicts a number of outsourcing relationship options asset managers can select and the roles and responsibilities associated with each offering. InvestTech has conducted a number of
reviews of the leading North American and European outsource service providers. These in-depth evaluations reviewed the depth and breadth of their offering, the applications, processes and industry utilities employed, a profile of their new client conversion and client support capabilities and how each is positioned on the outsourcing continuum. The reviews have provided insight into how each provider services their clients, and the relative functional and technical strengths and weaknesses of each provider. These insights are valuable to our clients that are considering outsourcing all or a part of their internal operations.
Has your firm considered outsourcing? Please share your experiences by commenting below.