RiskJuly 21, 2022

Many Asset Managers Are Eyeing Outsourcing, Per Northern Trust

Thanks to the pandemic, some 60% are looking at farming out certain operations, the firm’s survey says.

Reported by Larry Light

Welcome, perhaps, to the golden age of outsourcing. A Northern Trust study finds that the pandemic-inspired work trend has prompted a rethinking among investment managers on the value of keeping many functions in-house.

Some 60% of the respondents to the firm’s survey said the new environment has increased their likelihood of outsourcing. And of those considering farming out tasks, data management was the chief activity they wanted to fob off, at 48%. The second was back-office operations, at 44%, and the third, trade processing, at 36%.

The common thread, by Northern Trust’s analysis of the respondents’ answers, is that the outsourced activities “were not core to their business.”

As the report explains, “Outsourcing can boost cost efficiencies in areas such as data management, which can rack up high expenses for organizations. By working with an external partner that offers such services for a wide range of firms, managers realize the benefits of economies of scale.”

Hiring outsiders to perform functions is popular in the financial world. In our 2022 Outsourced Chief Investment Officer Survey, 30% of the asset allocators who responded already did outsourcing. Northern Trust’s asset management arm is a prominent OCIO provider.

Clive Bellows, Northern Trust’s head of global fund services for Europe, the Middle East and Africa, quoted in the firm’s study, discussed what asset managers were looking for in outsourcing partners.

“First of all, managers want a provider that is getting the basics right, such as custody, fund accounting, transfer agency and so on,” he said. “They also look for a stable organization that is committed to the business, who can help them as they start moving into the more value-added areas.”

The Northern Trust survey, done by WBR Insights, polled CEOs, CIOs and other officers worldwide from financial organizations with assets over $500 billion. Of those, 16% were from the U.S. and 15% from Canada. The bulk of them, or 92%, manage equity, while 64% oversee hedge funds, 62% fixed income and 30% real estate.