Asset management firms are increasingly looking to outsource their front office functions, according to a new report by BNP Paribas Securities Services and Investit.
The research revealed several reasons for this growing trend, including needing to keep up with regulatory requirements, advances in technology as well as the need to diversify in new markets and instruments.
“Asset managers are at a cross roads. They are looking for revenue streams in new asset classes and geographies, while having to demonstrate best execution and cope with market fragmentation. All these factors are putting pressure on dealing desks, which need ever more specialist expertise,” said Philippe Boulenguiez, head of dealing services at BNP Paribas Securities Services.
“Asset managers are increasingly coming to the conclusion that it might be far more efficient – both in terms of liquidity and cost – to use an outsourced dealing service instead of setting up multiple dealing desks, some of which might end up being under-used," he added.
Asset managers surveyed in the report said there were several advantages to outsourced dealing, including lower costs across personnel, data and technology, benefits in scale, extended dealing hours and increased proximity to markets, as well as lower operational risk and cost of errors.
“We have been looking at asset managers’ attitudes to outsourced dealing for a number of years,” said Richard Phillipson, principal and director of institutional consulting at Investit.
“Managers increasingly see outsourcing their dealing function as an economically attractive approach to achieving best execution. They see that the advantages could outweigh perceived negatives, such as losing some in-house expertise. UK based managers are open to experimenting by outsourcing Asian dealing for example. This is a marked change.”