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Asset Servicing | December 4, 2024

Doing More with Less: The Outsourced Trading Solution

Featuring Stephanie Farrell, Head of Integrated Trading Solutions, Americas

Asset managers in the U.S. face multiple challenges as they look to expand their reach – shifting market dynamics, including uncertainty around performance, geopolitics, and regulation, combined with the increasing cost of technology are compelling asset managers to identify new ways to efficiently grow their distribution avenues. 

In May 2024, Northern Trust commissioned a study of 300 global asset managers to identify their strategies for driving growth. A number of US-based managers identified expanding their product set and expanding into new markets as a way to achieve their goals. Still others are looking to invest in new technology that will allow them to create greater efficiency.

While these tactics are sound, they can also create their own set of challenges. Expanding into new products and markets requires significant investment in infrastructure and talent, while technology investment can be costly. If not executed carefully, these efforts can drain resources and undermine growth.  

To overcome these challenges, the survey revealed that many US-based asset managers are looking to outsource non-core functions, such as trading, to allow them to focus on their key priorities. This strategic move is driven by the need to optimize resources and streamline operations. In fact, nearly one-quarter of respondents indicated a willingness to outsource trading, a move that could unlock a range of benefits. 

For managers that want to increase their distribution, outsourced trading can enhance capabilities while helping to control costs. Outsourcing specialists possess the necessary knowledge, resources, and technology infrastructure to help managers grow their distribution effectively and efficiently. 

Growing while controlling costs

The ability to launch new products and tap into new global markets is critical for today’s asset managers looking to enable growth. Nearly 63% of US respondents to the survey who are looking to increase distribution said they will focus on new products, while 44% said they will enter new markets.   

One asset class that has gained significant traction is fixed income, given its potential to offer attractive yields and enhanced downside protection amid ongoing economic challenges. This was supported by the survey, which found that 40% of US-based managers plan to increase their allocations to fixed income. 

However, launching into new products and markets can be complex and challenging. Firms need to ramp up expertise when launching new products, particularly for the trading desk. Added to this is the ability to navigate the varying regulatory requirements around the globe, which can be daunting. 

Collaborating with an outsourced provider can increase operational efficiencies and bring a heightened level of expertise and governance to the trading function. It can also help investment firms improve their access to market liquidity and brokers and allow investment teams to focus on the value components of their operating models while leveraging greater scale and expertise. 

Outsourced providers can fill gaps by providing valuable local insights and operational support that would be difficult to establish in-house. With desks operating in multiple regions, outsourcers employ experts with specialized skills and knowledge of local markets, as well as extensive experience with numerous exchanges across different asset classes.  

Technology as a critical enabler to growth 

Technology is a critical enabler that allows asset managers to expand distribution and grow suites of products to better serve investors. The vast majority of asset managers (72%) who participated in the study pointed to the importance of leveraging technology to help them attain their strategic priorities. In particular, they need to ensure data consistency and quality to launch new products and reach new markets.  

Yet investment in technology is a costly endeavor.  Asset managers are increasingly looking to partners for tools to support product and market expansion. More than ever, asset managers recognize that outsourcing the trading desk enables the ability to scale faster while maintaining a lean cost structure. A growing number of firms are working with partners, with some 74% recognizing that the high cost of maintaining in-house capabilities is a driver for outsourcing.

Doing more with less 

As managers navigate uncertain times, achieving balanced growth is crucial, and outsourcing can help. Outsourced trading offers several benefits, including support with risk management, added expertise, improved technology, better governance, and greater operational efficiency. By partnering with a provider, managers can leverage specialized expertise that enhances their capabilities, allowing them to venture into new products and markets, gaining local insights and operational support. In essence, outsourced trading enables managers to do more with less, staying agile and competitive in a rapidly changing investment landscape.

Meet the Experts

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    Navigate to Stephanie Farrell

    Stephanie Farrell

    Head of Integrated Trading Solutions, Americas

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    Navigate to Robert Arnott

    Robert Arnott

    Head of Brokerage, APAC

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    Navigate to Amy Thorne

    Amy Thorne

    Head of Integrated Trading Solutions, EMEA

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