Is Component Outsourcing a Good First Step?

April 4, 2012

I recently read an article in the ISC Chronicle titled, “Component Outsourcing – BMW do it, can our industry?” by Geoff Edwards (ISC stands for Investment Solutions Consultants – to learn more about the organization click here).  The article discusses the continued hesitation of investment managers to jump into full outsourcing when it comes to their middle-to-back office functions.  While the asset servicing portion of custody has widely been an accepted  function, the perceived loss of control over data and information with the middle-to-back office functions can lead investments managers to keep these operations in-house and under their control.  Mr. Edwards noted, “… at TSAM Europe…The outsourcing stream concluded that component outsourcing is more prevalent than full outsourcing.  Investment Managers are more interested in outsourcing part of their operation.”

This coincides with what we see at PORTIA with both our clients and prospects in the asset management industry.  PORTIA Outsourcing Services has always focused on providing “component outsourcing,” allowing our clients to choose what pieces of their business make most sense for them to outsource.  Clients can start with areas such as performance measurement and/or reconciliation services, letting them transition middle-office functions without disrupting their entire operations.   We also provide customized service level agreements, enabling clients to structure how our services work with their operations to reach their organizational goals and help to reduce risk.

With this approach, organizations can step into outsourcing slowly, mitigating cost and risk. This not only frees-up resources, allowing the investment manager to focus more on what they have expertise in, but also encourages an organization to “try out” the service provider and ensure the service is at the level that they expect.  At a recent Citisoft outsourcing event, “one of the primary messages that resonated in the room was that service quality remains a significant area of concern for many managers” (to read more about the event click here) – component outsourcing helps reduce this concern. 

As Citisoft suggests, “outsourcing is going to attract a lot of attention from the C-suite, and rightfully so.”  Has your organization considered outsourcing or been scared away by a full outsourcing model?  Do you think component outsourcing is the right approach for your organization? 

 -Daniel Schlossberg, Director of PORTIA Outsourcing Services

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