Outsourced trading has traditionally been regarded as an option for smaller to medium sized managers looking to save on operational infrastructure costs. But increasingly, its gaining the attention of larger managers for the broader benefits.
Supporting expansion into new investment sectors
This is not just a cost play but an expansion and growth play. A Northern Trust study of 300 global asset managers released last year revealed that many EMEA-based managers plan to outsource non-core activities to achieve their strategic expansion goals. Nearly 30% of managers in Ireland and more than a quarter of managers in the UK planned to employ outsourcing strategies in the next two years.
Of these, more than 26% of UK-based managers planned to outsource their trading function. A third of managers in the Netherlands and Ireland planned to do the same, as did more than 40% of managers in Luxembourg and Guernsey.
Expanding into new markets and asset classes requires investment in infrastructure, talent, and technology. If not executed carefully, these efforts can drain resources and undermine growth. It’s here that outsourced trading providers can help.
Scale business operations
With desks operating in multiple regions, outsourcers employ experts with specialised skills and knowledge of local markets, as well as experience with numerous exchanges across different asset classes, enabling managers to focus on their core investment strategies.
The benefits of drawing on a global operational infrastructure became apparent during the move to to T+1 settlement in the U.S. last May. The reduced settlement cycle increased the pressure on asset managers in EMEA and APAC to execute trades quickly and accurately. By outsourcing, firms in these regions can efficiently tap into the U.S. markets without the burden of expanding their internal capabilities.
They gain access to experienced traders and advanced infrastructure, ensuring timely execution and the ability to adapt swiftly to market changes, all while focusing on their core investment strategies.
This is an important consideration ahead of the UK, EU and Switzerland trading venues switch to T+1 settlement in October 2027.
Operational resiliency
Today’s backdrop of market volatility highlights the focus on operational resiliency, putting firm’s operating models under the business continuity spotlight. Outsourced trading providers can help by integrating their trading capabilities within a client’s existing infrastructure. Apart from the benefits of access to the provider’s global trading desks, firms can also potentially benefit from the expertise of the provider’s traders and oversight.
An outsourced trading solution that goes beyond basic execution to encompass the entire trade lifecycle enables greater efficiency. Look for 24/6 ‘follow-the-sun’ global coverage across equities, fixed income, and options.
Additionally, having robust middle-office capabilities, from comprehensive trade settlement support to streamlining post-trade processes, helps reduce operational burdens on managers. And finally, a provider that supports global foreign exchange (FX) is essential for managing base currency exposure and enabling seamless cross-border transactions.
In today’s evolving market, outsourced trading is a quality rather than cost play. It supports expansion into new markets, efficient scaling, and operational resiliency – allowing asset managers to make agile market responses as they focus on their core investment decisions.
By Amy Thorne, Head of Integrated Trading Solutions, EMEA, Northern Trust
