Investment managers evaluate the alternatives to an internal trading desk
We explore the uptake and opinion on outsourced dealing from a range of investment management companies across Europe and look at what makes this service a credible option to achieve greater efficiencies and improved execution. Our research includes the input of 30 investment managers, surveyed by Sionic in February and March 2019.
The approach was to gain opinion:
- Geographically across Europe – representative firms from the UK, France, Belgium, Switzerland, the Netherlands and Portugal
- By size of firm – categorised by AUM of €2 to €30 billion; €30 to €60 billion and €60 billion upwards
- By type of firm – these ranged from in-house pension managers, wealth managers, and institutional fund managers through to the large global managers
- By role – those interviewed were Fund Managers, COOs, Heads of Compliance and Heads of Dealing. In summary 57% had operational roles and 43% were investment professionals
* We consider “investment managers” to include asset managers, asset owners, sovereign wealth funds and wealth managers. Respondents were surveyed in February and March 2019.
Our research on outsourced trading
The pressures to reduce costs, manage regulatory change, keep up with technological advances and improve capability are all causing investment managers to review how they execute orders.
MiFID II has increased regulatory reporting demands for market abuse monitoring and market transparency, forcing investment managers to incur considerable costs in reporting and system development.
An increasingly fragmented market has led to some firms investing substantially in the development of technology using machine learning to develop analytics that can make trading recommendations and identify the most effective means of execution.
Outsourced dealing can offer a viable alternative to setting up an internal dealing function. It can boost capability where asset class coverage is weak and provide coverage in different time zones where there is no physical presence. The use of outsourced dealing providers has increased steadily over the last 20 years, as have the number of providers in the market, which seek to address many of the current pressures. These include large custody banks and providers of investment operations outsourcing.
The types of provider have emerged from different backgrounds and are non-standard in the services offered.
Offerings vary by:
- Geographical location
- Asset class coverage
- Regulatory permissions
- Service model
A survey of 30 investment managers* across Europe has highlighted demand for specific benefits such as:
- Cost management and savings
- 24 hour dealing capability (follow the sun)
- Reduction in operational risk
- Improved execution
- Regulatory support
- Access to technological advances
Despite the known benefits, there are still many firms who do not consider this an option for their strategic model, especially those who regard dealing as an integral part of the investment process. Some speculate whether dealers being remote from managers could affect communication, leading to reduced market awareness and control over the function.
Providers of outsourced dealing services are listening to clients’ needs and concerns, and can provide tailored offerings, including bundling with other services such as investment operations or custody.
It is important to understand key requirements when selecting an outsourced dealing partner. Firms need to make well-informed decisions about which business model is most appropriate to accommodate their needs. Once a decision has been made, implementation is relatively straightforward.
All firms surveyed who have outsourced their dealing are providing positive feedback. There is now a proven established market for those looking for an alternative to an in-house dealing function or looking for flexibility and agility to move into new asset classes or regions.
In the research paper you will find more information about outsourced dealing, the different models on offer and the benefits. We also explore the market attitudes to outsourced dealing and outline the practicalities of selecting a provider and implementing this solution. Download the white paper to read more:
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