Half of asset managers said they would consider outsourcing part
of their front office, according to a study by global consultancy firm Alpha.
Alpha’s research polled 26 asset managers to assess appetite
for outsourcing. Responses suggested front office outsourcing is becoming more
appealing to asset managers, but is not seen as desirable or essential for all.
The last 10 years have seen a major shift in the nature of
outsourcing. Although a relatively new idea, front office outsourcing is
beginning to gain a critical mass, according to Alpha.
Regulatory changes, increasing costs and risk are driving
asset managers towards outsourcing. Speaking with The TRADE, Olivia Vinden,
principal at Alpha said: “Increased demand has been driven from two primary
sources: a continued focus on transferring fixed costs off the balance sheet or
an attempt to share the cost and effort of keeping up with new technology and
Despite growth in interest, the study does not suggest there
has been an increase in actual implementation of outsourcing for the front
office. Outsourcing does not meet the requirements of every asset manager, with
factors such as size, asset focus and geographic location.
Vinden said: “There is a big difference between the needs of
a small asset manager which invests in vanilla assets in a single time zone
versus a major global player which requires a follow-the-sun approach.”
Speaking to The TRADE, Carl James, global head of fixed income
at Pictet Asset Management, formerly at BNP Paribas Securities Services - which
offers an outsourced dealing desk function - said: “Front office outsourcing is
likely to be focused on dealing. Portfolio management (alpha) is the key
deliverable of any asset management firm, so is unlikely to be outsourced.”
“However, the size of a firm (AUM), the assets it trades,
how it trades and the geographic location are all variables and contributing
factors when deciding to outsource. Asset managers can completely outsource
their trading or outsource specific parts of it's trading. For example, if a
European asset manager wants to set up a trading desk in Asia, it could,
instead, send it's orders to outsourced desks already set up in the region.”
According to Alpha’s survey, 46% of asset managers said the
expect to increase the scope of outsourcing next year. The motivations for
using outsourcing have shifted with risk reduction and cost avoidance being
highlighted as primary concerns.
An overall growth in interest is evident but an increase in
execution of front office outsourcing remains to be seen, however Alpha
believes a transition is imminent.