Beyond the Talent Crisis: Building a Modern Operating Model for Investment Operations
Our last piece on talent explored how the investment operations orchestra is losing its musicians while the audience demands an increasingly complex repertoire. The traditional solutions, from geographic arbitrage and administrator outsourcing to pure technology plays, have fallen short and perhaps worsened the crisis, while operational complexity increases.
There is, however, a solution that orchestrates people, process, and technology in a way that scales with complexity. It is a hybrid model, combining flexible, transparent technology infrastructure with specialized operational expertise. This fusion of managed services and technology brings together a configurable operating platform and the skilled operators who know how to use it for complex investment operations.
The hybrid operating model in detail
This hybrid approach addresses the shortcomings of pure hiring, pure outsourcing, and pure technology solutions. Firms get customization and control without carrying the full burden of building and staffing their infrastructure. Providers take on the talent challenge while the firm maintains operational transparency and flexibility.
On the technology side, firms have a flexible starting point. They can mix and match, using additional services à la carte as an extension of the operations team, as well as putting forth custom requirements and requesting custom builds. Databricks and Salesforce have excelled with this model. They empower customers to build on their infrastructure. Similar data platforms are taking similar approaches, allowing customer communities to add onto the product and share elements in a marketplace.
In this approach, the architecture matters tremendously. In a single-tenant environment, everything clients utilize is an infrastructure template with unlimited possibilities because it doesn’t impact other clients. Unlike multi-tenant platforms, where making one change for one client affects all clients, a single-tenant approach gives firms as much flexibility as they need, such as adding custom naming, custom asset classes, custom transaction types, or custom strategy tags.
Four talent advantages
On the operational side, this flexible approach intentionally blurs the lines between operators (i.e., end users) and developers. This is especially true in complex areas that combine process and technology, like data management. More than 80% of managers are considering outsourcing data management, per a 2024 Northern Trust study.i It lays the groundwork for several advantages that neither pure hiring nor pure outsourcing can match. We see four main solutions to investment firms’ talent crisis:
- Technology providers can maintain specialized talent pools that individual firms couldn't easily justify. When you're building teams across reconciliations, collateral management, and complex accounting for multiple clients, you can justify hiring and retaining the deep specialists that a single firm would struggle to keep engaged.
- Providers stay current with regulatory changes and industry best practices. Continuous innovation is part of the service. For example, when T+1 settlement changes everything about your operational timing, or new margin requirements cascade through your collateral workflows, you don’t have to scramble to retrain your team or hire new expertise. The provider absorbs the onus of evolution.
- A shared responsibility model, straddling managers and providers, reduces single points of failure, offering better risk mitigation than trying to handle everything internally. It takes the edge off the risk of key people or senior operations staff leaving, as you don't lose institutional knowledge.
- It offers true scalability, with the ability to flex up or down with business needs without hiring and firing cycles. When you're launching a new strategy or expanding into a new asset class, you're not choosing between workarounds or waiting 6 months to hire and onboard the right talent. The expertise is already embedded in the platform and the team supporting it.
Hybrid economics
Talent questions impact cost as much as capability. In simplest terms, when you compare the total cost of ownership — salaries plus benefits plus technology plus training — against managed service fees, the economics often favor the hybrid model.
But there's a less obvious cost, as well. Having senior staff spend time on operational tasks rather than revenue-generating activities creates an opportunity cost. When your COO is troubleshooting why reconciliation breaks are piling up instead of thinking strategically about how to scale the business, you're paying for that in ways that don't show up on a budget line.
Finally, technology adoption also requires significant organizational change that many firms underestimate. Even the best platforms need skilled operators who understand both the technology and the business. As discussed in our earlier article, where firms do have the ability to pull in a tech person and train them on the business case, it means longer time to productivity. It means investment in that person.
The hybrid model shifts this burden to the provider while giving firms immediate access to that expertise. PwC research finds 81% of managers are contemplating options, including strategic partnerships, to enhance technological capabilities.ii
Choosing the right model
Different operational models suit different situations. The key is understanding which complexity triggers demand a different approach.
Direct hiring remains the best approach for firms with stable volumes, asset classes, and investor bases. For these, operational requirements are relatively straightforward, including standard IBOR, collateral management, and corporate action processing. For firms with existing infrastructure that meets requirements and expectations, plus a strong track record of long-term talent retention, building an internal team makes sense.
The hybrid of technology and managed services model works best for firms facing rapid growth trajectories in volumes, managers, strategies, or asset classes. It's particularly valuable for complex, evolving operational needs such as managing multiple admins and technologies, growing legal entity complexity, or sophisticated investor pools. Firms with limited internal technology resources or those looking to refocus on core investment and revenue-generating activities will find the most value in this approach.
Finally, large institutional investors (think, insurance companies, endowments, and pensions) present their own nuances. These firms often don't use administrators and instead focus on talent attrition and infrastructure modernization issues. Their challenges differ from those of hedge funds and private market firms. However, the underlying tension between operational complexity and available talent remains. Paradoxically, it means that hybrid models make sense at both ends of the firm size spectrum.
A shrinking window
As talent rotates out by changing jobs, leaving the industry, or retiring, the window becomes narrower. Yet, firms still want strategic space to maneuver as markets change. Those expanding into private credit, adding infrastructure investments, managing sophisticated cross-border structures, or scaling rapidly across multiple strategies can't wait for the talent pipeline to replenish itself magically. This will be true for the next waves of market innovation, as well.
The firms adopting hybrid models gain advantages that compound over time. They can scale into new strategies without the need for long and cumbersome hiring cycles. They maintain full transparency into reconciliation lineage. Regulatory changes get absorbed by the provider instead of triggering internal scrambles.
The veterans who understand esoteric derivative breaks and complex accrual flows will continue to age out. The talent pipeline shows no signs of replenishing itself. Firms expanding into private credit, infrastructure investments, or sophisticated cross-border structures need operating models that can support that complexity. Building that infrastructure now means having strategic options. Waiting means explaining to investors why operational costs continue to rise while capabilities struggle to keep pace.
This piece builds on our previous discussion of the talent crisis in investment operations. For the full context on why traditional solutions are falling short, see "The Talent Crisis in Investment Operations: Why the Problem Is Accelerating."
Authored By
Bernardo Cabada
As Vice President, Sales Operations & Enablement at Arcesium, Bernardo leads in showcasing the company's cutting-edge capabilities through executive-level engagements, delivering compelling presentations, technical demonstrations, and proof-of-concepts. His proficiency extends across crucial areas of middle- and back-office investment operations, with a particular emphasis on data governance and enterprise data management for investment managers and asset owners.
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[i] Northern Trust, 2024. https://www.northerntrust.com/content/dam/northerntrust/asset-servicing/global/en/documents/insights-research/2024/driving-growth-in-asset-management-2024.pdf
[ii] PwC, 2024. https://www.pwc.com/gx/en/news-room/press-releases/2024/pwc-2024-asset-and-wealth-management-report.html
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