Outsourcing: The Coming Wave in Investment Management
(c) 2002, Celent Communications. www.celent.com
Outsourcing has become a hot topic in the investment management industry, and with good reason. With the market downturn and intensified competition for assets, investment managers are evaluating their core competencies and looking to hand off those areas which, while essential, are unnecessary to keep in-house. Moreover, the very areas likely to be outsourced--back, middle, and even partial front-office operations--match the services now offered by outsourcing providers.
Today's outsourcing services extend beyond back-office functions such as custody and fund accounting. In particular, they offer process-oriented platforms, providing workflow automation and data integration to automate back to front-office operations, resulting in improved productivity, risk mitigation and cost reduction. Not surprisingly, demand is rising among investment managers for these services. Providers-- from global custodians, to traditional outsourcers, to technology vendors--are lining up to meet the need.
In this report, we explore the transformation of outsourcing services, review the factors driving demand, analyze the competitors and the various outsourcing business models, and consider the factors which will determine success in the marketplace. We also present findings of a survey we conducted among leading investment managers in order to assess their interest in and attitudes toward, outsourcing. Among the report's highlights:
* Outsourcing revenues will climb to US$30 billion by 2006. North
America and Europe will be the most promising areas foroutsourcing.
* 40% of investment managers surveyed are considering
expanded outsourcing within the next year.
* Stability is the leading criteria for selecting an outsourcing
* The Business Service Provider model (BSP) promises the greatest return potential, and providers will look to move clients to this model.
* Outsourcing providers will form partnerships, some even with competitors, to extend market reach, leverage complementary skills and/or ensure continued state-of-the-art technology platforms.