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"CASE STUDY Part 1: Outsourced Trading “Why Now? And Why One Size Does Not Fit All.”"

posted by CAPIS on 02/02/2022 at 8:25 am

by CAPIS

02/02/2022 at 8:25 am

This article was written by Martin Coughlan, CFA, CAIA. Martin has spent over twenty years working at asset management firms globally. 

 

The investment management industry has benefited from a period of above average returns for over a decade.

Period S&P 500

(Annualized Returns through 12/31/21)

3 Years 26.07%
5 Years 18.47%
7 Years 14.93%
10 Years 16.55%

 

This has counteracted the impact of negative net asset flows for many active managers. With central bank action, inflation and the broader impacts of the pandemic dominating the headlines from a macro perspective, most market commentators view more volatility and lower returns as the most probable scenario we will face in the coming years.Martin Coughlan, Acclinate

In such an environment, most investment managers will need to analyze their business even more closely and ensure they are operating at maximum efficiency levels. While the concept of outsourcing functions is not new within the industry, historically the idea of outsourcing trading is something that managers have viewed as suitable for start-ups, and not for established firms. This view is now being challenged as there are examples of small, mid-sized and larger managers (up to $50bn) that have successfully transitioned to an outsourced trading model in some form.

The form that Outsourced trading takes is unique to each manager’s situation. It is not a one size fits all solution as investment managers have different approaches to investing be it from their trading style, the geographic footprint of the strategies they manage, the asset classes they invest in, their client bases etc.

As managers think about outsourced trading, they could view it more as a supplemental solution to ensure they have redundancy built into their process and do not need to hire an additional trader, or they could outsource part of their book e.g., their non-U.S. trading. For others, a transition from a legacy model to a fully outsourced model may work best.

Over the course of this series of papers, we will look at why investment managers are considering outsourcing trading, historic objections that investment managers have had and how they overcame them. Lastly, we will look at how SMA/Wrap assets trading can be successfully scaled using unique Outsourced Trading solutions.

 

To learn more about CAPIS’ Outsourced Trading Services, please click here 

 

© 2022 Acclinate LLC. Paper commissioned by CAPIS

Acclinate’s founder is Martin Coughlan, CFA, CAIA. He spent over twenty years working at asset management firms globally. He has experience across the investment, distribution and operations functions. As a member of executive committees at three different asset managers, he is very much attuned to the challenges and opportunities that the buy-side faces. He has been involved in a number of outsourced trading implementations at investment firms that previously employed legacy trading desks.

DISCLAIMER: This article is for informational purposes only and intended solely for use by institutional investors. Use of this information by persons other than the intended recipients is prohibited.  Nothing in this article should be construed as an offer or solicitation for the purchase or sale of any financial instrument. All market prices, data or other information are not warranted as to completeness or accuracy and are subject to change without notice. This article was commissioned by Capital Institutional Services, Inc. (CAPIS) and at the time of publication its author was an independent contractor of CAPIS.  Notwithstanding the forgoing, the comments or statements herein do not necessarily reflect the views or opinions of CAPIS.