Why Outsource Middle-office and Back Office Operations

Throughout the investment sector, industry pundits are observing a major shift towards outsourcing to middle office and back office operations. This pattern has been attributed to the growing complexity of compliance requirements, as well as rising client demand for transparency in operations. New regulations have been passed especially in response to trade controversies in the recent years. Investors, meanwhile, are becoming more concerned not only with how their assets are performing, but also the quality of fund management operations. As a result of these demands, company managers now face the financial burden of setting up the infrastructure needed to support transparency. Investments have to be made towards technologies for trade operations, data storage, system maintenance, and disaster recovery, as well as portfolio analytics, daily cash, position, and trade reconciliation and corporate action processing. All these features come at a price, which some companies may not be very willing to spend. One strategy used by some fund management firms is investing in in-house technologies and human resources to handle these tasks, and then passing on the added costs to their investors, by charging higher fund administration fees. But this can create serious disadvantages. Aside from the added management duties brought by the additional tools and manpower services, a good number of clients may just decide to withdraw their investments and then switch to other managers that charge lower fees. On the other hand, by outsourcing, fund manaders are able to find solutions scaled according to their size and nature of operations. Truly, outsourcing is fast becoming known as the cost-efficient way to accomplish middle ofice and back office functions. Outsourcing has also enabled many companies to focus on their core business, and allot less time for dealing with administrative tasks. Because they have delegated the task to the service providers that specialize in this part of business operations and which are backed by state of the art tools, fund managers become more confident about the quality, efficiency, and consistency of the decisions they make for their clients on a daily basis. Today, there is a wide range of third party providers that offer middle office and back office solutions based on cutting-edge technology, as well as well-trained staff, solid accounting systems, and consistent reporting. Through their resources, asset managers can be assured of a reliable infrastructure that can promote smooth business operations, better data-based decision-making, and increased returns on their clients’ investments.