The Coronavirus pandemic caused many investment managers to establish new operating procedures and completely reconsider how their firms work, including what work to retain in-house and what to outsource to a third-party provider.
Today, the industry is seeing not only a continuation but an acceleration of this outsourcing trend. With mounting fee and performance pressure and increasing investor scrutiny, buy-side firms are ruthlessly examining their operating structures for processes that can be outsourced to improve the efficiency, transparency, and robustness of their business processes.
Increasingly, these firms want to retain only the processes that add value to their business and differentiate them from their competition. Tasks that can be completed less expensively, more efficiently, or more accurately by partnering with specialist providers will be outsourced.
To help firms better understand the state of buy-side outsourcing, in this blog, I take a closer look at what’s driving this demand, what functions firms are choosing to outsource, and how they are selecting and managing outsourcing providers.
Operational Resiliency and Talent Optimization Drive Continued Momentum in Outsourcing
In their 2024 Investment Management Outlook survey, Deloitte found that 29%, 23%, and 28% of respondents plan to pursue outsourcing for front, middle, and back-office processes, respectively, over the next 12-18 months. This number stands in stark contrast to the 4%, 5%, and 5% of respondents planning to pursue building such strategies in-house.
Much of this drive to outsource comes from firms’ desires to build operational resiliency coming out of the pandemic and adapt alongside a modernizing talent model.
To Outsource or Keep In-House? Why More Firms are Choosing to Outsource
Here are some of the key advantages we hear buy-side firms cite in their decision to outsource operations:
- Operational resilience and efficiency: Outsourcing gives firms greater resiliency by reducing key person risk and increasing the adoption of industry best practices. As the needs of the firm change – or employees leave or take time off – critical best practices don't get lost in the transition. Additionally, outsourcing frees up the time of internal resources to focus on higher-value work.
- Cost benefits: In many cases, outsourcing also makes sense from a cost perspective. In these changing times, firms are no longer willing to justify keeping processes that could be completed better and cheaper elsewhere in-house.
- Technical knowledge and expertise: Firms recognize that working with outsourced providers gives them access to expertise that would be difficult to replicate in-house. Working with specialist third parties, these firms can leverage the expertise of experienced technologists who work with the latest solutions.
Firms Seek Competitive Advantage from Retained Functions & Outsource the Rest
More firms are considering outsourcing everything that does not directly contribute to their bottom lines.
For many buy-side firms, that means outsourcing functions they consider laborious or areas in which there isn’t much option to carve out a competitive advantage; tasks like fund accounting and settlement, for example. In outsourcing these types of tasks, firms are better able to focus on alpha-generating activities within their firm.
Trading and execution and performance and attribution are two of the best ways for firms to differentiate themselves and are the types of business processes we see firms looking to keep in-house.
Firms Seek to Simplify Technology Stacks and Reduce Costs by Rationalizing Outsourcing Relationships
A growing number of firms recognize the value of handing over business processes to be managed by a specialist third party.
However, as the number of outsourcing relationships grows, many firms find that managing a range of third-party outsourcing vendors is complex and time-consuming.
To realize the promised value of outsourcing, firms must rationalize the number of relationships they manage.
Consolidating their tech stack with an existing vendor provides a more sustainable approach to outsourcing. This type of consolidation allows firms to simplify their operations while also reducing their costs, including IT costs, the cost of inefficiencies to investment professionals caused by imperfect integrations, and the cost and effort of juggling many outsourcing relationships.
Firms Require the Highest Level of Service and Support from Third-Party Providers
As investment firms seek to create leaner operations through outsourcing, they demand a vendor with a proven record of providing a high level of service and support to its clients.
That means working with a vendor that employs experienced leaders and teams with deep industry and product knowledge, people who can act as subject matter experts and support the firm in areas like regulations and compliance, trading and allocation, and third-party networks.
In addition, firms want vendors who have built proven infrastructure and methodologies they can count on.
A Partner You Can Trust
At SS&C, all clients receive a premium standard of service.
Globally, we employ over 500 experts supporting Eze solutions, so there is always someone available to advise you on best practices, ensure your business processes are optimized, or help you quickly navigate roadblocks and issues within minutes, not days.
In addition, we offer a host of project-based and long-term solutions for expanding firm capabilities, activating business growth, and streamlining and managing operations.
Learn more about our range of services or contact us to speak to an expert about how SS&C services can help your firm improve the efficiency, transparency, and robustness of business processes.
