The Art of Strategic Outsourcing
Partnering for Success
TABLE OF CONTENTS
By forming strategic outsourcing partnerships, investment firms can significantly enhance their operations, costs, and risk and compliance practices.
Contrary to the common misconception that outsourcing is primarily about processes and contracts, a successful outsourcing relationship involves so much more. It requires choosing the right functions to outsource, enlisting trustworthy providers, and building collaborative partnerships aligned with an investment firm's strategic goals.
Successfully balancing these aspects of outsourcing is an art.
When done successfully, it allows firms to benefit operationally, drive superior firm performance, gain a competitive edge, and scale agilely in a rapidly evolving industry.
In this guide, you'll learn:
- About the evolution of outsourcing at investment firms
- What's driving firms' demand for outsourcing and the benefits of doing so
- How firms choose when and what to outsource
- The various types of outsourcing relationships
- Real-world use cases for outsourcing
- How firms select and manage outsourcing relationships to ensure a harmonious and productive partnership
You will come away with a more nuanced understanding of the factors that contribute to successful outsourcing partnerships and how you can apply them to benefit your firm.
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The Evolution of Outsourcing
Brian Tsai, chief operating officer/chief financial officer with nearly two decades of experience as a hedge fund COO/CFO, recently shared his perspective on how firms’ interest in outsourcing has evolved over time.
Brian said that although outsourcing has gotten more attention in recent years, it is not new and that outsourced trading, one of the earliest roles to be outsourced, has been around for quite some time.
Then, in 2008, investors were looking for a way to hold firms more accountable and ensure they weren’t "cooking the books." Brian recalls, "To meet investor demands, firms hired independent, outside fund administrators to manage their accounting work."
The pandemic also significantly impacted the industry's view of outsourcing, demonstrating for investment managers and allocators the decisive role outsourcing could play in running a firm amidst pandemic-related challenges and beyond.
"Since the pandemic, outsourcing has moved to the mainstream. Today, firms can outsource virtually everything,” says Brian.
And they are. Investment managers today are choosing to outsource everything from compliance and regulatory reporting and middle-office functions to data management, analytics, and IT infrastructure.
Moving forward, Brian believes that market and industry pressures will continue to drive the need for outsourcing and that "As firms face evolving market headwinds, outsourcing will become even more important.”
Industry Headwinds Driving Demand for Outsourcing
Deloitte's 2024 Investment Management Outlook, which surveyed 600 senior investment management executives, confirms Brian’s real-world experience. Their research found that 29 percent of firms plan to outsource front-office processes, 23 percent will outsource middle-office operations, and 28 percent will outsource back-office functions.
In stark contrast, only around 5 percent of survey respondents indicated that their firm plans on pursuing a "build" strategy for front-, middle-, and back-office processes.
What is driving this increased desire to outsource operations across the firm? This interest is primarily driven by 6 key headwinds facing investment managers today:
In recent years, achieving profitability has become increasingly challenging for investment firms.
In their 2025 Investment Management Outlook survey, Deloitte reports that despite growing assets under management in 2023, both revenue and profit margin expansion remain elusive for the investment management industry.
As organizations recognize the importance of technical talent in their success, demand for these resources continues to rise, leading to a shortage of IT professionals.
For firms that have invested resources in maintaining, fixing, and upgrading their on-premises technology, this shortage of IT talent comes with significant risks of downtime or disruption in operations.
The Benefits of Outsourcing
To address these headwinds, firms are choosing to enlist third-party providers to support their operations. This move toward outsourcing creates several other benefits for investment firms:
- Reducing Costs
In many cases, outsourcing makes the most sense from a cost perspective. In these changing times, firms are no longer willing to justify keeping processes in-house that could be completed better and cheaper elsewhere.
- Increasing Expertise and Adoption of Best Practices
Too often, firms’ perspectives are limited to only the employees they have on staff. By outsourcing, these firms can tap into the experience of professionals who work with many clients throughout the industry. These outsourced professionals bring the value of that broader perspective to the work they do for the firm. Firms understand that this expertise would be difficult to replicate in-house.
- Limiting Key Person Risk
Personnel changes are constant. Employees take time off or find other jobs. During these times of change, simple yet critical details like passwords or how to log in to the portal can get lost in the transition.
An outsourced provider can take on these operational tasks to better prepare firms to navigate these inevitable transitions, reduce key person risk, and ensure continuity in operations, protecting firms from costly interruptions.
- Expanding Employee Satisfaction and Productivity
According to NextOne Staffing, when done right, outsourcing can contribute to higher employee engagement.
When a firm frees its employees from routine tasks through outsourcing, these employees can focus their expertise on more rewarding work – like enhancing the client experience and differentiating the firm from the competition.
NextOne research finds that outsourcing allows employees to focus on developing their core competencies, leading to growth opportunities, wellbeing for the employee, and improved outcomes for the company.
- Keeping Up with Emerging Technology and Insights
With everything already on their plates, it can be challenging for investment firms to keep up with all the latest technical innovations and industry best practices. Outsourcing can enable firms to stay ahead of the curve. These experts live and breathe the latest technologies and innovations and can educate and enable firms with all the industry has to offer.
- Navigating Compliance Complexities
Outsourced providers can help firms navigate the complex and ever-changing regulatory landscape. With expert insights on industry standards and compliance requirements, these providers can assist in implementing strategies, like compliance reviews and investment system rule configuration, to mitigate risks and avoid penalties.
- Supporting Smoother Scalability
Outsourcing can help firms quickly scale up operations to meet increased demand or market conditions without the need for significant upfront investments in infrastructure or personnel. These resources can be adjusted as firm needs change due to seasonality or other fluctuations, optimizing costs and resource allocation.
Additionally, the internal resources freed up by outsourcing can be reallocated to the more impactful items driving long-term growth.
To Outsource or Hire In-house: Deciding When and What to Outsource
When it comes to deciding what functions to outsource, more and more firms are considering outsourcing everything that does not directly contribute to their bottom lines.
For many buy-side firms, that means outsourcing functions they consider laborious or areas in which there isn’t much option to carve out a competitive advantage. These functions include tasks like fund accounting and settlement. By outsourcing these types of tasks, firms are better able to focus on alpha-generating activities within their firm.
Trading, execution, performance, and attribution, on the other hand, are key ways for firms to differentiate themselves. As a result, they are also the types of business processes firms look to keep in-house.
A firm’s lifecycle stage is another consideration when choosing to outsource. Firms at different stages have different concerns: A newer, smaller firm’s primary consideration may be controlling costs. This motivation will shape its outsourcing decisions, as costs for hiring internal headcount add up fast. These firms, therefore, may choose to outsource more expensive positions, like traders or CFOs.
For more established firms, outsourcing such key positions may be seen as a red flag to investors. This kind of developed firm, responsible for managing multiple billions of dollars, will instead rely on a mix of outsourced and in-house support.
To guide their outsourcing decision, firms will also conduct a thorough cost-benefit analysis to evaluate the potential benefits of outsourcing versus keeping operations in-house.
This analysis involves considering all potential costs and cost savings. What does the firm have to gain or lose from a quality, risk, efficiency, and control perspective? What does the firm have to gain by diverting internal resources to higher-impact tasks?
Ultimately, the decision to outsource or maintain operations in-house will depend on the specific circumstances and strategic goals of the investment firm. Understanding the firm's competitive differentiators and lifecycle stage and conducting a cost-benefit analysis will provide a valuable framework for making an informed decision for its unique scenario.
Hear from one emerging firm about why they believe outsourcing is the future.
Understanding the Types of Outsourced Services
When considering outsourcing, firms should know that vendors offer different outsourced services for different needs.
Here, we detail some of the types of managed services firms are using to benefit their firms. While these descriptions are based on the services SS&C provides, any leading investment technology vendor should offer similar support.
Managed Operations
Investment firms use managed operations to increase efficiency in their day-to-day operations, supplement short- or long-term resource constraints, optimize their use of technology, or meet a particular business or operational challenge.
Some of the tasks our managed operations team takes on include handling firms’ essential but routine daily and monthly operational processes, offering expert advice on enhancing firm processes and operations, and maximizing the flow of information across the organization.
Managed Applications
Managed applications let firms tap into a vendor’s technical expertise to provide peace of mind about how the firm’s infrastructure is hosted and managed.
With managed applications, the vendor handles both hosting architecture and management, including the services firms need to feel confident in their infrastructure: Testing disaster recovery and security protocols, fully replicated data, and issue resolution.
Another benefit of leveraging managed applications is the option of Zero-Lift Upgrades (ZLUs), also referred to as managed migrations or managed upgrades. Zero-lift upgrades are automatic, non-disruptive updates to technology deployed by a managed applications provider.
No matter what a firm chooses to outsource, their vendor’s services should always act as an extension of the team, helping manage everything from critical everyday business processes to servers and applications.
In the next chapter, we’ll cover how real firms are applying these services to navigate change, enhance efficiency, and keep compliant.
What to Look for in a Managed Applications Provider: 5 Things To Know Before Outsourcing Investment Technology Infrastructure Management
Use Cases: Outsourced Services in Practice
So, how are firms applying outsourcing to improve processes and gain a competitive advantage in their businesses?
Below are some real-world use cases of how firms we work with engage with our services offerings to navigate change, enhance efficiency, and keep compliant.
Onboarding a New System
Investment firms regularly evaluate and update their technology to stay competitive, compliant, and efficient. However, adopting a new solution – and ensuring its optimal performance – can be daunting. Fear of disruption prevents some firms from implementing new software even when they know it will add value to their operation.
For one investment manager we worked with, that fear kept them from moving forward with a new accounting system. The firm wanted to onboard the system but didn't have the in-house expertise needed to implement and maintain this new technology.
Leveraging the knowledge and bandwidth of SS&C Managed Operations, the firm was able to move forward with the new accounting system. After the implementation was completed, the firm continued to use managed operations to maintain the system, including handling third-party reconciliation, pricing and valuation, and investor and shadow accounting.
SS&C Managed Operations provided the time and know-how the firm needed to implement and utilize a new accounting system. In doing so, managed operations alleviated the need to hire or train people in-house, eliminated key person risk, and ensured a successful transition to the new system.
Enhancing Trade Break Resolution
Trade breaks are a common challenge for investment firms, often resulting from human error, system discrepancies, miscommunication with counterparties, or events like corporate actions and market fluctuations.
When trade breaks occur, they can disrupt daily operations. As back-office teams work to manually reconcile discrepancies, settlement delays and processing backlogs become inevitable, increasing the potential for operational risks and increased costs.
To mitigate the time and expense associated with trade breaks, our client leveraged SS&C Managed Operations to monitor and resolve breaks in coordination with their brokers.
By utilizing SS&C Managed Operations to oversee trade matching, our client's operations team could reallocate their efforts toward more strategic, high-value internal tasks. Additionally, since many trade breaks occur between 6:00 and 9:00 p.m. Eastern Time, managed operations provided coverage during hours when the client’s internal staff would be unavailable.
By leveraging managed operations for trade matching, investment firms can enhance operational efficiency, reduce costs, and minimize the risk associated with trade settlement delays.
Filling Front-Office Gaps
In today’s fast-paced investment landscape, it is essential that investment firms have confidence in their front-office teams' ability to execute orders quickly and accurately. But for one OMS client, ongoing short- and long-term staffing challenges were preventing them from meeting this critical goal.
Facing employee turnover and the need to recruit new talent, the firm turned to SS&C Managed Operations to bridge the staffing gap. The managed operations team seamlessly backfilled key front-office tasks, including trade allocation, new security creation, security maintenance, and manual trade entry support.
The firm eventually filled these roles, and this client used the managed operations team to train its front-office staff in operations and ensure they were fully educated in OEMS processes and procedures.
Keeping Compliant
The investment and wealth management industries continue to face a period of significant regulatory and operational change.
For one firm, the challenge of keeping up with these numerous compliance updates was exacerbated by employee turnover.
To maintain compliance and avoid costly penalties, the firm turned to SS&C Managed Operations. The compliance specialists from the managed operations team collaborated closely with the investment manager and compliance officer to review and test the firm’s internal rules, ensuring compliance with current regulations.
As regulations evolve, the managed operations team continues to perform regular rule audits and implement rule updates, ensuring the firm remains compliant. These recurring reviews are based on the latest regulatory changes, providing the firm with ongoing compliance assurance.
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What to Look for in an Outsourcing Provider
A successful, long-term outsourcing relationship is based on trust, collaboration, and shared objectives. So before committing to an outsourcing relationship, firms should conduct thorough due diligence on potential partners, even if they already have a vendor relationship with them.
To understand whether a potential vendor is up to the task. Here’s what to look for:
Evaluate the infrastructure and methodologies that back the vendor’s outsourcing team. Does the team have the systems and technology they need to perform their roles as efficiently and effectively as possible? What automation or AI tools are they using to speed up processes?
Does the vendor have procedures in place to ensure uninterrupted service if someone is sick or out of the office? What is their investment in ongoing training and development for these teams? These kinds of investments pay dividends for the firm.
Before partnering, discuss the onboarding process with your potential vendor.
What are the steps for getting the outsourced team up to speed on processes and regulatory requirements? What do their testing, QA, and pilot phases look like, and how long should your firm expect each phase of the process to take?
Your firm deserves to work with a dedicated team devoted to getting to work as efficiently and quickly as possible.
Regular communication is essential for maintaining a strong partnership and ensuring an outsourcing provider meets your firm’s expectations.
Depending on the services used, the vendor will likely establish a cadence for updates on performance metrics and reviews of open issues and upcoming milestones. The solution should also include less frequent but more comprehensive discussions covering strategic goals and alignment, challenges or opportunities, and necessary service adjustments.
Providers should also establish a mechanism for feedback and continuous improvement and open lines of communication outside of check-ins in case the firm has questions or needs assistance.
As we’ve discussed, one key benefit of working with an outsourced provider is access to their subject matter expertise.
Before choosing a provider, learn about their experience with firms of similar sizes, strategies, and challenges. Find out if they truly have the required expertise. The provider must not only have this expertise but also be able to apply it to the context of the individual business.
This subject matter expertise – combined with in-depth knowledge of the firm – ensures the outsourcing relationship will meet your firm’s unique needs.
Choose a provider that has the flexibility and scalability to grow and evolve with the firm. To do this, firms must understand the breadth and depth of the vendor’s outsourcing offerings.
Not only that, but you should also make sure any potential provider can accommodate your firm’s needs in the face of changing market conditions or regulations.
To find out if a provider meets this standard, look at their history and reputation in the industry.
Understanding a provider’s reputation in the industry tells a lot about what working with that vendor will likely be like. Request references from existing outsourcing clients to get firsthand insights into their experience.
Is the vendor trustworthy and effective in their role? Do they foster open lines of communication? Is their subject matter expertise evident in their work? What role do their services play in the success of their existing clients?
Additional Considerations for Your Decision to Outsource
Once you’ve done your due diligence, there are a few other factors to consider before selecting an outsourcing partner:
- More Outsourcing Relationships are Not Always Better
After understanding all of the benefits of outsourcing, it can be tempting to seek a vendor for any and all outsourcing opportunities. However, keep in mind that hiring more vendors doesn’t always mean less work for the firm.
As the number of outsourcing relationships grows, many firms find that managing a range of third-party outsourcing vendors becomes complex and time-consuming.
To realize the promised value of outsourcing, firms are rationalizing the number of outsourcing relationships they manage.
One sustainable option for developing outsourcing relationships is engaging an existing trusted vendor for outsourced solutions, like a technology provider. This approach has several benefits, including faster onboarding, cost savings, and a single source for a holistic view of your firm’s operational landscape. Additionally, this option provides a much-simplified experience compared to the effort of juggling many outsourcing relationships.
- A Partner You Can Trust: Managing Risk, Security, and Regulatory Concerns
When engaging with an outsourcing provider to conduct a portion of your firm’s work, validating this provider’s risk, security, and regulatory practices is critically important.
After doing due diligence on a provider, pick one that adheres to the highest cybersecurity standards, is operationally resilient, has robust risk management processes, and adheres to all relevant regulations.
- Setting Expectations with Governance Mechanisms
Contractual agreements are one way of ensuring that an outsourcing provider adheres to a high standard of security, compliance, and risk management.
When creating such an agreement, ensure expectations and each party’s responsibilities are clearly defined and agreed to and that a plan and remedies for non-compliance are in place.
An oversight committee can also help maintain control and protect client interests in the outsourcing agreement. The committee's role is to monitor the outsourcing relationship and conduct periodic reviews and audits.
By implementing these governance mechanisms, investment firms can effectively manage their outsourcing relationships, mitigate risks, and protect the interests of their investors.
Unlocking Growth with Strategic Outsourcing
In the ever-evolving investment management landscape, strategic outsourcing has emerged as a powerful tool for firms seeking to enhance their operations, reduce costs, mitigate risks, and bolster compliance.
As we've explored throughout this guide, the art of successful outsourcing lies in carefully selecting the right functions to delegate, aligning with trustworthy providers, and building collaborative partnerships that align with the firm's strategic goals.
Once the outsourcing partner has been selected, the outsourcing relationship should not merely be a transactional process but a strategic partnership that can significantly impact an investment firm's success.
By carefully navigating the complexities of outsourcing and leveraging the expertise of trusted providers, firms can unlock new opportunities, outpace the competition, and position themselves for long-term growth in the competitive investment management industry.
SS&C Outsourcing: Solutions to Meet the Specific Needs of Your Firm
SS&C’s strategic outsourcing experts act as an extension of your team, seamlessly handling short- and long-term operational processes within your existing SS&C technology platform.
With a flexible range of front-, middle-, and back-office managed services, you can configure a solution that meets your current needs and easily scales as your firm grows.
How can we enhance your operations? Contact us to hear from an outsourcing expert about how SS&C Managed Services can support your investment firm’s success.
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