For many asset managers, it makes a lot of sense to outsource their back office accounting functions to a third party provider. Back office functions are often seen as commodity functions that, of course, need to be completed accurately and efficiently but are not an area where firms can significantly differentiate themselves.
The middle office is a tad trickier. Although there has been a trend toward outsourcing the middle office, many asset managers are keeping the middle office close to the chest, perhaps selectively outsourcing parts of the middle office to get their feet wet if you will, before embarking on a full-scale middle office outsourcing agreement.
The front office, for many asset managers, is where the magic happens – where they can differentiate themselves from other firms. Order management, pre-trade analytics and the like are still managed with in house, best of breed products. It’s not unusual for asset managers to run five, six, or even more front office systems to meet investment manager needs.
For the most part, we’re hearing from our community that the front office is fine the way it is today. Those responsible for operations would like to decrease the number of front office systems they need to maintain, but in the end, the business needs trump any desire for consolidation.
We’ll be discussing this topic more in-depth in an upcoming research report on trends in asset management outsourcing as well as at our 7th Annual Asset Management Industry Outsourcing Forum December 8 in New York. In the meantime, we’d love to hear your thoughts about asset management outsourcing trends, whether you are on the buy side or the sell side. You can contact me at lvalentine@fsokx.com
