Amid growing competition, regulatory shifts, and market uncertainty, investment management firms face significant challenges in their pursuit of alpha. Many are focused on growing assets under management (AUM) and often lack the capacity to handle complex operational tasks or the technical expertise to implement technology-driven efficiencies needed to support new strategies.

As such, investment management firms increasingly consider partnering with specialized technology and managed services providers whose core business is technology and operations. In this article, we’ll explore the ways managed services can be used and how it can benefit investment management firms as they look to compete and grow.

A compelling case for managed services

While there are numerous reasons for firms to modernize their technology and outsource middle-and back-office operations, perhaps the most compelling is the ability to refocus on core competencies and reclaim time to drive better returns for clients.

Even minor strategic changes, such as adding new asset classes, investors, or fund structures can create significant downstream effects for back-office technology and operations teams. Complexity increases exponentially, and when multiple disparate systems are in use, the back office may struggle to keep pace with front office ambitions.

By adopting an open, flexible technology foundation and partnering with a dedicated team of financial operations experts, firms can implement a scalable solution that seamlessly integrates technology and services. This approach ensures middle- and back-office teams are fully equipped to support the front office's growth. Most importantly, the back office won’t limit the front office from seizing new opportunities.

Additionally, in an uncertain economic climate, firms may turn to outsourcing to enhance operational flexibility while mitigating the risks associated with internal teams, such as attrition, key person risk, and recruiting costs. The overall impact here isn’t always measured in dollars. Employees value work-life balance, and when high turnover places undue stress on remaining staff, operational burnout rises, and a firm’s culture can deteriorate. Outsourcing can help alleviate these pressures, fostering a more sustainable work environment that enables firms to attract and retain talented employees.

How managed services can be used

Given the compelling case for managed services, what are some of the ways managed services can be used? While the possibilities are vast and not limited to this list, here are a few common ways we see our clients get started:

Data management: Reduce data inconsistencies with data management services to perform tasks that are critical to cleansing and maintaining data quality, including installing data checks and controls and managing exceptions.
Reconciliation: Confidently manage high volumes of trading activity, multiple counterparty relationships, and complex asset classes with reconciliation services tailored to produce accurate, reliable records that fit your specific business requirements. Support from a global team of operations professionals can help ensure reconciliations are completed before the start of the next trading day.
Treasury Management: Seasoned treasury service professionals can help oversee financing counterparties, facilitating your distinctive funding needs across various multi-strategy and multi-asset class portfolios.
P&L Oversight: Experienced professionals can efficiently manage your accounting data with strong P&L production and allocation controls.

Practical benefits of managed services

Managed services can provide many practical benefits. Here are a few key examples that can enhance a firm’s operations:

Capacity

Leveraging external expertise through outsourcing can offer access to specialized skills and resources that may not be readily available within an organization. By collaborating with managed services providers like Arcesium, investment firms can gain access to operational-specific expertise that’s already connected to a modern technology infrastructure.

A partner with expertise in a wide range of asset classes and geographies can also help shorten time-to-market when launching new products or entering new regions. Our teams around the world can also give firms a head start on daily processes with deliverables typically completed before markets open in all major geographies.

Coverage

Today’s operating models must have the flexibility to adapt to a firm’s changing business needs or potential market volatility. The COVID-19 pandemic, for example, caused disruptions in day-to-day operations, the effects of which are still being felt at some institutions, in some cases resulting in a shortage of skilled operations personnel or high turnover.

Moreover, recruiting and hiring new talent can be time-consuming and expensive, and often doesn’t factor in the cost of losing someone on a team.¹ Managed services can be a cost-effective way to navigate a fluctuating labor market, helping to provide relief for staffing instability and ensuring continuity of operations. Services can also be tailored to support unique needs or capabilities with client-defined thresholds and configurable agreements, without requiring an all-or-nothing approach.

Confidence

Gain internal confidence in your outsourcing vendor by using a partner well-versed in similar business models and committed to transparency. There’s a difference between a provider who simply sends you a report at the end of the day and one who acts as an extension of your team. They’re invested in your success, collaborating with you to understand your business needs and mapping out flexible service arrangements aligned to your requirements. Technology is also embedded in the process, allowing you to view status updates throughout the day and monitor workflows directly within your own system. This provides you with confidence that operations are running smoothly.

Additionally, working with a provider who understands your business can help offer operational resiliency and reduced risk, thereby supporting investor confidence for managers who choose to partner with a trusted services provider. During periods of market volatility, operational demands can unexpectedly surge. Outsourcing transactional processes allows firms to manage the increased workload while staying focused on business priorities and maintaining high levels of client service.

Start your managed services journey with Arcesium

In a competitive environment, combining modern technology with sophisticated managed services can help investment management firms with much needed operational efficiency, control, and confidence. With the help of Arcesium’s managed services team, you can drive further efficiency and value from our robust technology tools and gain access to dedicated teams of experienced financial operations professionals to drive efficiency for your middle and back office.

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Keith Raftery