Asset managers plan to outsource costly non-core work to focus on investing

Pedro Gonçalves
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Asset managers plan to outsource costly non-core work to focus on investing

A recent Northern Trust survey, which polled 300 asset managers around the world, has highlighted an increasing trend for asset managers to outsource front-to-back office operations in order to optimise their operating models, gain operational resiliency and improve bottom line performance.

The poll found that 45% of respondents consider data management as the function most likely to be outsourced within the next two years. Some 40% are looking to outsource back room operations, and 38% at middle office functions.

The survey of 300 asset managers, including 40% in Asia, was conducted in the first quarter of 2020. Respondents' assets under management range between $10bn and $500bn.

In a challenging economic environment, people are rightly taking stock of what activities are core and what are those that could be outsourced or performed elsewhere"

As fee pressures continue to grow and margins shrink, firms are examining their core functions in order to concentrate on enhancing business performance.

According to Ryan Burns, head of global fund services at Northern Trust, asset managers are facing rising cost pressures, including those related to regulations and technology.

"That really lends itself to looking at outsourcing as an option, meaning that in a challenging economic environment, people are rightly taking stock of what activities are core and what are those that could be outsourced or performed elsewhere," he said in the survey report.

A front-runner of this trend, Conning Asia Pacific Limited (CAPL), a specialised investment manager based in Hong Kong, outsourced non-core, high-capital intensive investment operations functions to Northern Trust in 2019.

Caroline Higgins, head of Global Fund Services, Asia at Northern Trust, says: "CAPL is an example of an innovative firm which carefully considered its target operating model and has continued to stay ahead of the curve. They outsourced their middle-office operations to us ahead of the pandemic, and as a result are successfully positioned to meet both the current and future economic climate.

"The Covid-19 pandemic has further encouraged many asset managers to focus on the optimal operational model, enhancing efficiency and reducing cost, leading many of our clients to consider outsourcing their front-to-back or whole office operations. We anticipate this trend to continue as providers move up the value chain to drive growth."

Chicago-based Northern Trust had $1.3trn of assets under management as of end-June 2020.

 

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