Driving down costs through traditional outsourcing of back-office functions has long been a widely adopted solution on both the sell side and the buy side. For purposes of control and independence, however, buy-side firms resisted adopting enterprise-wide outsourcing as a viable option for managing growth. Today, in an environment defined by risk management and regulatory compliance, the need for institutional scale, and the challenges of generating alpha, this view of outsourcing is undergoing a fundamental change as operational focus turns increasingly to middle- and front-office functions.
According to Opalesque, the top 100 alternative asset management firms have a cumulative asset base of more than $3 trillion. Estimated spend on internal, operational services is approximately 30 basis points, or $9 billion. That excludes payments to outsourced fund administrators, which are absorbed by their clients. Reducing these operating expenses to 15-20 basis points would result in $3 billion to $4.5 billion savings for the industry.
Today’s alternative asset management industry poses a unique set of challenges – and economic opportunities. It is with these opportunities in mind that a new, highly collaborative form of outsourcing is emerging. Co-sourcing is a breakthrough model designed for the next generation of managers who are embracing truly innovative ways of building for scale in order to have the freedom to invest, innovate and grow.