The Next Era of Outsourcing

Alexander Bowie

As the investment management industry continues to face internal and external headwinds, there is now, more than ever, a need for asset managers to assess their operating models and ensure they are positioned for growth. Outsourcing key functions has been, and can still provide, a silver bullet in improving the overall operating model efficiency while transitioning to a variable cost model.

The Evolution of Outsourcing

Era 1:

In the early days of outsourcing; Custody, Fund Accounting & Transfer Agency services were outsourced by asset managers in response to margin pressures.

Era 2:

As service providers’ capability matured, the Middle Office was outsourced in response to both cost pressures and the challenge of coping with the range and complexity of global investible assets for asset managers without the scale to create in-house capabilities.

Era 3:

Now, as the industry continues to evolve and the rate of service provider innovation grows, asset managers are considering Outsourcing more and more services: everything post-investment decision has begun to be seen as having the potential for consideration.  This has seen the emergence of ‘Whole Office’ and ‘Front to Back’ solutions being pitched by service providers.

Why Now?

Margin pressures, regulation and governance, and increasing AUM are driving the need for asset managers to assess their operating models and ensure they are positioned for growth. Outsourced Provider Selection provides a mechanism for asset managers to partner with a service provider that meets all their ambitions; supporting the products, geographies and capabilities required today, and in the future.

At Alpha, our outsourcing transformation client conversations are focused around three key themes:

  • First-Generation Outsourcing: Clients might be considering outsourcing a specific function or service for the first time where the ability to extract value and alpha from that area has diminished, or there simply is not sufficient internal size and scale to justify the fixed costs.
  • Provider Landscape Rationalisation & Service Bundling: Clients might be struggling to manage a large and complex web of providers and seek to rationalise their landscape to achieve better control and oversight, realise commercial synergies, in response to M&A or, in response to the FCA Value Assessment (or other local regulatory Value Assessments).
  • Launching New Products & Markets: Global clients may be seeking to launch new fund ranges or products in new jurisdictions and be seeking to review the capability of an incumbent versus a local expert.

Where to Start?

Alpha has a proven track record for successfully delivering first- and second-generation Outsourcing Transformation programmes globally, and recommend the following approach to starting your journey:

  • Target State Vision: Set the foundations for your transformation early by clearly defining your firm’s objectives and strategy for your operating model of the future and the boundaries of outsourcing within this model.
  • Current State Assessment & Benchmarking: Review your current operating model and benchmark your outsourced relationships to assess your capability, service provision and commercial position verses the market.
  • Provider Ecosystem Analysis: Get to know who the service providers are in the region or markets of interest that have the capability to support you and the appetite for your business.

What are the Benefits?

From our experience, clients who have moved to an outsourced operating model have been able to re-focus on delivering sustainable alpha, they have freed up capital to invest elsewhere and positioned their businesses for future growth.

Alpha has supported the industry’s largest and highest profile global outsourcing deals over the past decade and longer, supporting the implementation of more than $5 trillion in AUM through outsourcing.

If this is a topic you would like to discuss further, please reach out to Alexander Bowie to arrange a time to speak or you can read more about our Operations and Outsourcing practice here.


About the Author

Alexander Bowie

Alexander is a Senior Manager at Alpha and has nine years of experience working on outsourcing transformation programmes and has more than six years’ experience within investment management outsourcing.

During this time, he has worked on and led programmes across the transition lifecycle from strategic operating model design through provider selection and transition implementation including across first and second-generation transitions.He has worked with asset owners, asset managers and service providers across the UK, Europe and North America contributing to some of the industry’s most exciting global programmes.