RESEAR CH


Fig.4 Hedge Funds


Are you currently outsourcing or considering outsourcing any of the following middle office functions?


Middle office outsourcing Total


Over $10bn $2-$10bn Under $2bn


North America Europe Asia


40%


29% 34%


63% 30%


52% 50%


37% 70% 48% 50% 60%


71% 66%


Middle office outsourcing is an additional tool to optimise the operating model In the face of increased costs and demands as a result of managers’ ever-growing and complex businesses, middle office outsourcing remains an area that 6 in 10 managers have embraced.


Middle office outsourcing continues to evolve with service offerings from new entrants — spin-outs from managers, banks and technology companies — with offerings that have provided serious competition to incumbent providers that continue to invest in this space.


Neither currently nor considering outsourcing


Currently or considering outsourcing


Though smaller managers are likely to have less complex needs, they should evaluate whether the available solutions offer much-needed cost efficiencies, thus reducing their break-even point. For the two-thirds of smaller managers who have not looked to outsource, this could be a tool that helps reduce the operational and cost burden so they can focus on core capabilities.


“We are going to continue to outsource more and spend in tech infrastructure.” (UNDER $2bn, ASIA, EQUITY LONG/SHORT)


Fig.5 Hedge Funds


Are you currently or considering outsourcing any of the following middle office functions?


Pricing/valuation


Confirmations/affirmations and settlement


OTC services (ISDA details/confirms, OTC reconciliation) and bank debt processing


Corporate actions processing


Daily P&L


Margin calculations and collateral management/optimisation


Cash management FX hedging


34% 30% 1% 5%


27% 4% 27% 2% 25% 2% 15% 5% 2%


12% 2%


6%


Currently outsourcing Considering outsourcing


Acceptable to outsourcing Investors Which of the following middle office


functions are acceptable for your hedge fund managers to outsource to a third party?


Pricing/valuation


Confirmations/affirmations and settlement


OTC services (ISDA details/confirms, OTC reconciliation) and bank debt processing


Corporate actions processing


Daily P&L


Margin calculations and collateral management/optimization


Cash management FX hedging


89% 87% 89% 91%


74% 77%


64% 60%


Broadly speaking, investors are accepting of outsourcing all of these functions. They show the most resistance to cash management and hedging, but even those are supported by 60% of investors. Managers should not resist outsourcing on the mistaken belief that investors are not comfortable with it. Investors are satisfied with the benefits that managers have reaped from using third parties to perform a majority of back office functions and are now encouraging their managers to be opportunistic in expanding to utilise specialists in performing as much of the middle office as possible.


Cost savings is a key driver, but other factors are also providing impetus to outsource All managers recognise the cost benefit associated with outsourcing as a key driver; however, it is interesting that other deciding factors tend to vary by size of the manager.


46


Investor comfort with outsourcing far outpaces manager willingness to relinquish control While the previous results indicate that a majority of managers are comfortable outsourcing areas of the middle office, these results show a greater reluctance among specific types of activities. Part of this inconsistency can be attributed to current outsource providers choosing to focus on niche areas of expertise while lacking quality full-service middle office offerings. Managers who are considering outsourcing middle office functions would be wise to put a holistic transition strategy in place even if they expect to make the move in stages. The interdependencies between functions — and the front office — should not be underestimated.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73