2013 Trends – Most Seem to Agree about Outsourcing

January 3, 2013

Ared goldfish leadings the new year begins, we are bombarded with articles that race to name the key trends experts see emerging or continuing to grow in the year to come. From the asset management perspective, articles run the gamut from investment policy and market trends to technology and infrastructure. While every article has a different take on what the market will do and what to invest in, one area that has a common thread is IT outsourcing. It seems most in the industry view the asset management move to outsource some or all of their operations as a trend that will continue its upward climb.

Even more interesting, most of the experts seem to agree on the rationale that is driving this trend. Recently my colleague, Jon Anderson of SS&C GlobeOp, penned an article for Financial Technology Forum, “Outsourcing Drivers” (click here for full article), that succinctly describes these drivers.

To paraphrase what Mr. Anderson’s identifies as “common rationales” for outsourcing:

Cost: Asset managers are looking for efficient ways to take advantage of industry technology such as automated trade matching, messaging and cash transaction processes.

Quality: For some asset managers functions, such as OTC derivative trading, are important functions, but not primary ones. For these managers choosing to outsource can allow key personnel to focus on the most important aspects of their business. This can be true for hedge fund managers as well as for corporate treasurers, pensions managers etc.

Oversight: Pressures to provide transparency and independent verification of asset existence and valuation required by institutional investors and regulators. Also, increased scrutiny is compelling boards of directors, Chief Risk Officers and other governing bodies to require more transparency to fulfill their fiduciary responsibilities.

These trends mimic what we at SS&C PORTIA are hearing in discussions with new prospects and long-time clients alike. As asset management organizations are reviewing the effectiveness of their operations, looking for ways to streamline processes, better manage costs and help maintain or improve margins, they are quickly realizing that managing their technical infrastructure and other “non-core” tasks can be a distraction and takes resources away from focusing on their primary business drivers.

In addition, we see the change in the outsourcing service providers and their offerings as another reason asset managers are more open to outsourcing operations. Outsourcing and outsourcing providers have evolved, offering more services and options and working more in partnership with firms. This allows customized solutions that are better aligned with business objectives and lets the asset manager direct how much or how little control is handed over to the service provider.

As asset managers continue to work through the slow market recovery, continuous regulatory pressures and outdated in-house technology, the move to outsourcing will become more and more the norm as a part of the overall IT strategy. Outsourcing the appropriate functions in the middle-to-back office not only allows firms to reallocate resources and potentially reduce cost, but it also makes companies more agile, competitive and compliant. By outsourcing parts of the companies operation, such as non-differentiated parts of the middle-to-back office, company’s can better focus on the components of their business that bring the most value to the organization.

– Munther Haddad, Vice President, Global Implementation and Outsourcing Services

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