Research conducted among investment managers by consultancy Investit suggests plenty of scope for successful outsourcers to progress beyond the back office and move into traditionally more guarded middle and front office functions.
Outsourcing providers that prove successful in managing client expectations and developing more specialist skills have the potential to move into unchartered middle office and front office territory, says Peter Ellis, principal at Investit.
He says: "We know that portfolio managers want to outsource what they see as the boring administration behind the fun stock picking. The draw of managing a start-up hedge fund has proven that to many investment companies."
Investit's research among investment houses found opportunties for ousourcing traditional middle office functions, such as performance attribution, portfolio maintenance and even some client relationship functions, such as producing client reports. And the scope for expansion stretches into the front office in areas such as order management systems, compliance monitoring, dealing and cash management.
"The middle and front office are not safe from quality, specialist outsource providers," says Ellis. "But only if they manage the transition to a sustainable business model."
To achieve this, he continues, outsourcing firms need to re-engineer their client relationships, move beyond conventional lift-out deals and develop more specialist knowledge and collaborate with complementary business partners.
"Although 'world domination' through scale is a tempting goal, at this stage, excellence is preferable to coverage," Ellis advises.