Could Outsourcing the Middle Office Provide a Competitive Advantage?

Compete harder, grow faster. These are just two of the benefits investment firms gain from outsourcing their middle-office functions, says Alter Domus Director Juliana Ritchie. However, she understands why some are wary of taking this important step.

When it comes to providing an efficient and effective investment management service, the importance of middle-office operational functions such as settling and matching trades, reconciliations and maintaining books and other records shouldn’t be understated.

They’re all vital aspects of delivering a competitive and trusted service. The efficiency and security of these functions are only growing in importance as regulation continues to intensify and external threats to multiply.

As a result, running a middle office that’s truly fit for purpose is becoming more challenging and expensive for all types of investment and fund managers, in Europe and right across the world.

Quality and rigour

Despite their great and growing importance, however, these key operations are not always the first thing investors look for when vetting a fund. As Alter Domus Director Juliana Ritchie explains, “They sometimes take it for granted that admin of this sort will be of sufficient quality and rigour to give them the reassurance and seamless service they’re looking for.”

“They’re often focused on analysing a firm’s investment record and long-term portfolio performance. Increasingly, too, they’ll be looking for a demonstrable ability to analyse and use data in ways that directly improve returns.”

According to Juliana, savvy managers are also interested in elements that add even greater value – those aspects of a service that directly enhance their ability to perform. “It’s perfectly natural that they’ll be looking out for clear evidence that that a third-party service provider can create and deliver excellent investment solutions that work, underpinned by outstanding expertise and experience,” she says.

Expert third parties

When management teams are able to focus on the key aspects that generate the most value, they are better positioned to achieve their growth aspirations.

 “This is certainly a primary motive behind the decision of growing numbers of firms to outsource their middle-office operational functions to expert third parties like Alter Domus.”  

It doesn’t stop there, however.

“It’s clear from observing the experience of our own clients that the advantages of outsourcing are more wide-ranging. Outsourcing also provides access to a powerful and flexible platform, integrating up-to-date technology with specialist skills. And this drives a range of other advantages.”

No restrictions on growth

For most managers toying with the idea of outsourcing middle-office functions, there is the question of scalability. Alter Domus continuously makes the investments in both technology and expertise to service even the fastest-growing client businesses. “That means there are no resource restrictions to place limitations on your growth,” says Juliana. “Essentially, we can give you the scope to grow as fast as you can build the business.”

“Just as important, we take away from you any need to invest in the middle office. So you will never again need to worry about technology becoming obsolete or people requiring further development – we do all of this on your behalf.”

By working with a specialist service provider, client firms can be assured that quality issues will not be a limiting factor on their growth. These are just some of the reasons why the Technavio market research firm expects the global middle-office outsourcing market to grow at a CAGR of 9.19% from 2018 to 2022.

Choosing to outsource is a major decision that demands caution and deep consideration. Juliana adds, “Outsourcing brings with it significant issues around trust and culture, and our clients often tell us that it can take time to ‘get their heads around’ taking such a significant step.”

Faster, stronger growth

“However, I can also report that they quickly come to see how doing so frees up time and resources for them to grow – faster and stronger. So while the need to fully trust an outsourcing partner means there will always be rightful concerns, our clients’ experience and accelerating market traction both show that the benefits significantly outweigh any such worries.”