The ability to work remotely, at least part of the week, was one of the positive trends that emerged from the pandemic — at least for employees.
Now remote work may prompt a different, less employee-friendly, result.
More than half of respondents to a survey by Northern Trust said the remote work environment has increased the likelihood that they will outsource some functions to third parties.
In a white paper titled “Driving Growth in Asset Management: The Next Chapter,” Northern Trust surveyed 300 global asset managers about how their strategies have changed since 2020 and in response to the current market and industry environments. The survey was conducted in the second quarter of 2022.
“[That 60 percent] is a pretty powerful number,” said Ryan Burns, Northern Trust’s head of global fund services in the Americas. “People learned that work could be done from multiple locations.”
Amy Lynch, founder and president of FrontLine Compliance, an outsourced regulatory compliance firm, agreed and added that the survey’s findings also aligned with increasing interest in her firm’s services since the start of the pandemic.
Lynch credits the pandemic’s effect on the working environment, arguing that the work-from-home world has also made outsourcing feel more normal and feasible to asset managers.
“Since the pandemic, it has suddenly seemed okay to have remote workers, and if you’re going to have a remote employee, it’s not that much of a leap to go from a remote employee to an outsourced model or vendor to provide that function,” Lynch said.
Northern Trust also found in its survey that asset managers plan to turn to outsourcing to achieve their goals in the next two years.
The firm noted that one-third (37 percent) of asset manager respondents see outsourcing as a “key tool” in achieving priorities over the next two years. These priorities include creating greater efficiency (50 percent), controlling costs (47 percent), enhancing quality and accuracy (45 percent), and focusing on risk and compliance (44 percent). Managers also said some goals included focusing on business resilience, improving investors’ experiences, supporting new asset classes and new markets, and expanding the product set of their firms.
To achieve their priorities in the next two years, managers plan to leverage new technology, refine and implement target operating models, and outsource. All three of these approaches are interconnected, according to Burns.
“There are some commonalities in terms of the challenges that people are facing that outsourcing offers opportunities to address,” he said.
Common problems include the operating model itself and turnover. Over the last two years, the Covid-19 pandemic tested and stressed the ways people do their jobs.
Turnover also has forced asset management firms to either adapt operating models or replace their talent.
“We feel at Northern Trust that outsourcing is one of those positive responses to those stressors. It’s a way to allow the asset manager to focus on their unique aspects or the special sauce,” Burns said.
Northern Trust also asked respondents about their plans to increase distribution. Sixty-one percent of respondents said they hope to launch or increase environmental, social, and governance options, 52 percent plan to invest in analytics to support the investment process, 40 percent said they will target new client types, and 37 percent said they will launch new products in general. Most notably, 36 percent said they will launch or increase alternative investment options, with 53 percent saying they plan to partner with another firm to achieve this.
Nearly half of respondents said they are considering outsourcing their data management capabilities in the next two years. Others said potential areas to hand off to another firm include back-office operations, trade processing, foreign exchange, securities finance, investment analytics, administration accounting, trading, and compliance monitoring.
The increased focus on outsourcing comes down to longstanding concerns about scale and speed that were exacerbated by the pandemic, according to the study. For one, the pandemic proved the value and demand for remote work, but it also changed the labor force. Fifty-one percent of respondents acknowledged this, saying staffing challenges increased their likelihood to outsource. At the same time, technology limitations (38 percent), cybersecurity concerns (44 percent), the cost of maintaining in-house capabilities (52 percent), and the availability of new vendor capabilities (42 percent) were also behind the increase.
Commenting on remote working arrangements, Lynch said firms don’t care about whether or not a function happens inside or outside of the office. In the end, asset managers are focused on increasing “efficiencies,” she said.
“That’s the big term I'm seeing everywhere,” she said. “You do that by getting the best resources available to you, and it doesn’t have to be [from] an internal hire anymore.”