Asset management firms are more likely to outsource additional functions after first successfully outsourcing a single function. We recently conducted a survey in partnership with Global Custodian to examine the evolving attitudes toward outsourcing middle- and back-office functions. Our results show that clients look for opportunities to repeat their first successful steps into outsourcing by identifying internal functions that can be outsourced to continue the momentum. We surveyed 250 firms, of which 68% were asset management firms, split roughly evenly between US- and UK-based firms, as well as a few based in Europe. These asset management firms can be further categorized as hedge fund managers and traditional firms.
Most participants reported that their satisfaction with their decision to outsource was either as expected (30%) or better than expected (43%). Between the two asset management groups, their responses to this question were largely comparable, with traditional firms being a bit more likely (31%) than hedge funds (26%) to report that their expectations were met, and hedge funds being a bit more likely (45%) than traditional firms (43%) to report that their expectations had been exceeded. This slight difference may be attributable to larger firms being more accustomed to in-house technology.
We also asked participants about the drivers and inhibitors behind their outsourcing decisions. More than 60% of respondents cited operational expertise, greater efficiency, cost and technology as their main drivers. Inhibiting factors included initial cost, the perception of loss of control and internal resistance. When asked about the factors behind the decision-making process, greater efficiency ranked first while the location of the provider received the lowest rank. Hedge funds gave slightly more priority to location.
Another driving factor is whether the firm had already successfully outsourced an operational function, with 45% of respondents reporting that they had already added functions to their initial outsourcing. While respondents seemed hesitant to share specifics about their future outsourcing plans, many did indicate that their most likely areas of future outsourcing would include operational administrative tasks. Overall, the study shows a decrease in levels of concern about the principle of outsourcing, with asset managers and hedge funds becoming increasingly comfortable outsourcing middle- and back-office functions.
For more details about these findings, download the "Outsourcing Middle- and Back-Office Functions: An Assessment of Perceived Experience" report.
