A quarter of asset managers devote 20% or more of operational expenses to the middle office, research has found.
SEI, the asset manager that conducted the research and which also provides operational services to other firms, says middle offices – despite not having a consistent industry-wide definition – have emerged as a “critically important operational component and a largely untapped source of value”.
In a report – ‘Middle Office: A hidden source of competitive advantage’ – SEI says sophisticated asset managers are transforming their middle offices from being “mere support functions” to a source of “long-term strategic organisational value”.
“Our research backs up our belief that the middle office has emerged as a critically important operational component of investment firms globally whether they manage long-only, alternative or hybrid strategies,” said Stephen G. Meyer, head of SEI’s investment manager services division.
Just over 91% of survey respondents expected to spend more on middle-office technology over the next 12 to 18 months, SEI found.
Expanding product lineups that include more esoteric asset classes, complex investment strategies and geographic breadth were drivers, and fee pressure resulting from the continued growth of indexing, greater demands for transparency and more assertive investors, were other factors.
The survey cited regulatory compliance as one of the biggest operational challenges for asset managers, though data management is often seen as the single most important challenge, followed by legacy IT systems and complex investments.
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