Business & Investment

Stock Market: Who needs to sit next to a trader?Asset management companies employ outsourcing

London: more Pension fund, Insurance companies and Asset manager is outsourcing According to industry sources, we will provide some or all of our trading desks to professional traders looking to reduce costs and adapt their operations to address the coronavirus crisis.

last year’s Volatility As the market plummets as the pandemic takes hold and rebounds when government stimulus begins, asset managers spend more time juggling transactions and spending more time on regular long-term asset allocation tasks. Was reduced.

By transferring some or all of the transactions to specialized companies, industry sources say, more groups of banks and brokers can be accessed, transactions can be executed cheaper, and asset managers can trade with trading staff. You will be able to reduce the cost of your device.

Changes in labor practices brought about by the pandemic are also accelerating the transition to outsourcing.

“Since we all work from home, people are aware that you don’t have to physically sit next to a trader to communicate,” he said. Tom Carroll, Head of Asset Management at Sanlam Investments, UK fund manager who outsourced transactions to Northern Trust shortly before the pandemic.

Carroll said the move meant that 20 fund managers at his company could “focus more on what they were good at.”

Gary Paulin, Global Head of Integrated Trading for Northern Trust, said the bank has 65 outsourcing trading clients, 18 of which were added in 2020. Half of the new clients were long-term only asset managers, not involved in short-selling or other hedging activities. The two were asset owners such as pension funds.

“Last year was a really, really important turning point for the industry,” he said, saying that asset managers said that the type of market volatility seen in 2020 “always exposes a bloated cost base.” He added that he is rethinking how it operates.

Outsourced trading unit sales at Natixis Investment Managers International increased 18% to € 317 billion ($ 384 billion) in 2020 due to high volatility.

Investment Bank Cowen’s Global Outsourcing Trading Unit doubled its earnings in 2020, said Jack Sabald, Managing Director of Cowen and Global Co-Head of Prime Brokerage and Outsourcing Trading. .. He did not reveal his income from the business.

“With the blockade, many managers have turned to the idea that outsourcing transactions can be a reliable solution,” he said.

Slow burns

While outsourcing of back office functions such as accounting is well established, the trend towards outsourcing transactions is slowly burning, industry sources say.

It started about 10 years ago as a stock trading service for hedge funds and wealth managers. It expanded after European regulations made the operation of trading desks more complex here.

According to industry sources, cost savings, operational efficiency and trading expertise have made investors outsource their transactions, making them even more attractive to insurers, asset managers and pension funds.

David Berney, founding partner of Ergo Consultancy, said a European insurer has reduced the cost of buying and selling US Treasuries from 25 bps to “number” basis points through outsourcing.

Cole Smead, president of Smead Capital Management in Phoenix, Arizona, switched to an outsourcing deal with Outset Global in October, but said the company no longer needs to hire traders in London.

Erik Vynckier, a non-executive director of the UK insurance company Foresters Friendly Society, said outsourcing makes sense for companies under the control of less than € 500 million.

“It will be difficult to get a good trader in a portfolio of this size,” he said.

Stock Market: Who needs to sit next to a trader?Asset management companies employ outsourcing Stock Market: Who needs to sit next to a trader?Asset management companies employ outsourcing

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