Are you rightsourced? It’s a crucial, and ongoing, question asset owners must ask: to what degree should they insource or outsource their investment management, and operational and technical support functions to achieve the greatest value?
According to a new BNY Mellon survey, while the majority of asset owners continue to outsource asset management, the insourcing trend is on the rise.
Lower overall cost of in-house management and improved net-of-fee performance are key drivers. Institutions tend to start by insourcing more straightforward asset classes such as cash and fixed income, before expanding to other assets, says the report.
Control is a further factor. The ability for asset owners to align investment strategy and practice to long-term objectives, and have a better handle on reporting and portfolio oversight, are proving crucial considerations.
The right capabilities
Insourcing asset management evidently has its attractions, but there are challenges too. Reorienting the organization’s governance processes is perhaps the largest, says the report. Recruiting and competitively compensating internal investment staff is another.
In addition, asset owners will need comprehensive, timely and accurate data to drive their in-house teams’ investment, risk and compliance decisions. Ensuring ready access to clean, high quality data can be expensive though – especially as data vendors publish ever more, and more esoteric, indices and benchmarks. Many institutions also lack the right infrastructure and expertise to efficiently collect, validate, transform, store and disseminate the full array of data they require.
By contrast with the growing desire to insource asset management, it is no surprise that – in the face of increasing complexity and rapidly changing regulatory and reporting demands – the opposite is true for investment operations.
According to the survey, one particular area asset owners are most likely to seek third-party vendor support is in data management and oversight: “While asset owners report that a key reason to insource is to have the ability to have greater oversight over their portfolios, they are increasingly finding it hard to keep up with the demands to manage huge amounts of data to create the reporting they need.”
Handling the actual performance, compliance and risk reporting in-house is still an option. However, the data management that feeds those internal systems now requires too many data specialists for most institutions to do it effectively. Instead, by outsourcing, organizations are discovering they can achieve both cost efficiencies and data management improvements.