Institutional investors are increasingly looking to outsource their dealing functions, driven by cost pressures, evolving technologies, and the growing need for investment managers to have access to 24-hour specialist services.
Over 20% of institutional investors are considering outsourcing their dealing functions in the next 18 to 24 months, according to a report by BNP Paribas Securities Services (BNPP SS) in conjunction with financial consulting firm Sionic.
Another key factor behind this trend is “the need to reduce operational risk and improve execution outcomes through connectivity to a greater range of brokers”, the report found.
As investors diversify their strategies across different regions and asset classes, they need 24-hour access to dealing services.
“Outsourced dealing offers an interesting alternative to setting up an internal dealing function. It’s a less mature market than outsourced middle office for example, but things are changing fast,” said Thomas Castiel, head of dealing services at BNPP SS.
“In addition to hedge funds and small boutiques, which were early adopters of outsourced dealing services, we now see larger investment managers looking to outsource their dealing operations to support their development in different regions and assets classes with a cost-effective solution.”
Keeping up with the latest technological advances, and the need for regulatory support, were also cited as key reasons behind seeking outsourced dealing functions.
“The dealing role has evolved and become more sophisticated as new trading methods and venues have appeared,” said Clare Vincent-Silk, partner at Sionic.
“With MiFID-driven market fragmentation, the role of the dealer has become less administrative and more specialist. However, not all dealing teams have the capability to deal with the new world.”
The research was carried out between February and March this year, including the input of 30 investment managers based in Belgium, France, the Netherlands, Portugal, Switzerland, and the UK.
*Listen to the Funds Europe/Northern Trust webinar on outsourced dealing: 2019: The tipping point for outsourced trading.
*Patrick Colle, the CEO of BNP Paribas Securities Services, is interviewed here.
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