Co-sourcing is a partnership in which the asset manager and service provider collaborate to create workgroups that provide customized support across various business functions. Support is delivered as a service over an extended period of time, typically 3-5 years. These workgroups can be located at the client’s site, remotely or both, depending on the type of support being provided. In turn, the service provider is able to reduce and accurately forecast its cost of doing business over a long-term contract by servicing a larger volume of business from one client while at the same time sharing work group management with the client. Contracts are usually administered as part of a larger master service agreement.
Fully realized, a co-sourcing model provides alternative investment managers with an operating model that supports five essential attributes. These attributes, which evolved from a highly successful engagement executed in partnership with one of today’s largest global alternative investment asset managers, are:
- Quality. Asset management firms demand business models that deliver a consistently high level of quality. Such engagements must provide access to skilled resources and quality infrastructure.
- Control. Managers need complete control in selecting resources, scale of operations and quality of infrastructure required. They would like to retain control across business functions, including outsourced processes. Managers increasingly seek service models that can be extensions of their existing businesses. This helps ensure seamless delivery of processes in line with desired quality and timelines, using the same underlying processes and technology platform.
- Independence. Managers require third-party independence to mitigate conflicts of interest and control. Furthermore, engagements that are flexible and can be customized provide greater ease of integration between in-house teams and third-party services.
- Scale. Growing investor demands and regulatory pressures pose operational and budgetary challenges. Operating models must enable managers to leverage and manage significant increases in assets and complexity through economies of scale.
- Economics. Staffing costs represent about 70 percent of overall expenses for asset managers in the US, with an average split of 40:60 between front-office and other operations. Non-front-office operations account for 40 percent to 50 percent of total expenses, of which 10 percent comprise IT and systems costs. Managers are seeking solutions that will provide reduced expenses and convert fixed costs to variable costs without compromising on scalability or quality