Asset Management Outsourcing: People & Technology

Data and technology that support investment management businesses are significantly changing, especially within wealth and asset management organizations involved in alternative asset management trends. Investment managers outsource a variety of administrative and operational tasks from the front office to the back office. Among investment advisors: 

• 38% of advisors outsource their investment performance reporting.
• 27% hire outside marketers.
• 55% of advisors outsource their technology.
• 59% outsource their legal and compliance tasks.

The Rise in Customer Expectations

Investors, clients, and regulators have high expectations for more transparency in reporting capabilities. 

A frequently asked question is, “Why do corporations outsource functions?” Corporations do this to match the market’s changing needs in the digital era. 

To improve their investment offerings, industry administrators and other technology providers must invest significantly in operational best practices, recruiting seasoned workers, and consistently improving their firm’s technological stack and services. This is especially true for the middle office space. They must also make an effort to optimize cybersecurity protocols in view of the expanding number of cyber threats. As a result, outsourcing is becoming more popular.

Additionally, costs for firms are under pressure from more regulation, low borrowing rates, growing passive investing, and greater competition. In order to concentrate on efficiency and scalability, firms must simplify their IT infrastructure, standardize operations, and automate tasks with the aid of business process outsourcing.

The History of Outsourcing in Asset Management

Asset managers have been developing target operating model considerations for years; as a result, there have already been two waves of alternative asset management trends in outsourcing. The first one was about trade settlement and asset administration, often known as back office functions, which include things like transfer agency, fund accounting, or tax withholding and reclaiming outside of core custody, where financial advisors often face key decisions on outsourcing accounting management. 

In the asset management sector, second-generation outsourcing entails sophisticated business process outsourcing agreements, this phase has largely covered middle-office functions, focusing primarily on transaction processing and related data and reporting management.

Given how frequently outsourcing has been used in the asset management industry, the advantages are obvious and probably don’t need to be emphasized. Although the best-of-breed method, which has dominated the investment management sector for two decades, must give way to a strategic partnership approach, there is a mindset shift required to accept this transition and allow businesses to reap the full benefits of outsourcing functions with people and technology.

Change Management Strategy By Asset Management Companies to Leverage People and Technology

Asset management companies will have to make five significant changes to their operations, methods, and technological environment in order to compete in the middle-office outsourcing market in the future with increased adoption of outsourcing in the industry: 

Develop an Operational Model that Complements Scalability

The requirement to service multi-asset funds at a larger range of locations will force more administrators to provide 24-hour business processes across all time zones and make the investment necessary for functional teams to handle growing volumes.

Redefine Job Descriptions With Business Process Outsourcing

Make sure the business has the knowledge and talent necessary to service new areas or implement middle-office solutions. For instance, the position of the fund accountant has been fundamentally altered from actively owning the end-to-end process stages to now serving as a function overseer. A deeper understanding of newly defined roles and duties is necessary to determine the reasons behind the lag in the management cycle. 

Better Communication

For asset managers and their administrators, creating a unified, single data source and a smooth flow of procedures is more crucial than ever. This necessitates excellent communication between the middle office administrator and the front office, which places a high value on both reliable workflow technology and specialized employee knowledge. 

Improve Automation of Processes

A lack of technological investment and attempts to cram solutions into a functional model have led to many administrators developing offline tools that tax their capacity and resources. To free up qualified workers for more difficult positions that deliver more value and have the potential to command greater salaries, it will be essential to use both cutting-edge workflow technology and robotic process automation. Recent research of future trends in outsourcing, conducted by Deloitte, suggests a third wave of outsourcing in the investment management sector, an “Outsourcing 3.0.” The concept involves concentrating on an asset manager’s core operations to improve workflow processes and give them a distinct competitive edge.

Invest More in Technology

Invest in replacing non-scalable systems and offline solutions, as well as the development of a middle-to-back-office platform that is more integrated. Work closely with asset managers and technology providers to jointly develop tools, technologies, and services. Instead of just creating solutions on your own and waiting for clients to buy them, work to strengthen your position as a trusted advisor.

All in all, outsourcing is an effective method for companies to enhance efficiency and encourage scalability. As expectations and demands of clients and regulators change, companies are able to keep up better through offshore outsourcing. Many processes can also be automated to improve workflows, quality, and efficiency.

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