The Case for Outsourcing Investment Performance Services
Firms are increasingly challenged to increase the effectiveness of their performance programs, manage with fewer internal resources, ensure high-quality results, reduce turnaround times, and lower costs.
These pressures leave firms in danger of creating risky exposure gaps in their performance program.
Outsourced managed services are becoming an increasingly popular choice for firms aiming to relieve themselves of operational challenges. According to the latest Cost of Compliance Report from Thomson Reuters, 38% of firms outsource all or part of their compliance functionality, driven by the need for additional assurance on compliance processes (52%), the lack of in-house compliance skills (42%), and cost (43%).
The move to managed services has been influenced by several factors outlined below.
With many countries facing or in recession, economic uncertainty presents firms with staffing challenges. According to the KPMG 2022 CEO Outlook, when preparing for an anticipated recession, 75% of firms have implemented or plan to implement a hiring freeze in the next six months and 80% have considered or will consider downsizing their employee base in the next six months.
Managed services can play a key role during these times as a reliable solution that helps stabilize operational risk and costs, requires no benefit overheads or lengthy onboarding process, and allows for scaling as needed.
An exodus of talent can also mean that expertise and specialism leave with the person. Individuals with the right specialisms and expertise prove a costly and time-consuming process.
Unsurprisingly, these trends mean compliance staff costs more, as a scarcity of people with key skills raises salaries. In the 2023 Thomson Reuters survey previously mentioned, a majority (61%) of respondents said they expected the cost of senior compliance officers to increase (51% slightly more than today, 10% significantly more).
As investment firms grow, their performance measurement and reporting requirements can become more complex, necessitating additional resources and expertise. By outsourcing these functions to a third-party, firms can access the necessary resources and support to scale their investment performance programs efficiently and effectively.
Managed services offer scalable solutions, accommodating the needs of growing firms and facilitating seamless expansion into new markets. This scalability also allows firms to focus on their core competencies while still meeting the demands of their expanding client base.
According to the Deloitte 2023 Global Shared Services and Outsourcing Survey, the number one reason for outsourcing is cost reduction (followed by standardization and efficiency of processes).
The outsourcing of an investment performance program management to a third-party firm can reduce time and costs related to hiring, on-boarding, and retaining in-house staff, technology investments, and other overhead expenses.
- On average, it takes 28 weeks to reach optimum productivity at a cost of £25,200 per employee (according to research by Oxford Economic).
- The loss of an employee costs approximately 33% of their base salary. Employee turnover exceeded $700 billion in costs to employers in 2021, more than doubling since 2009 (according to research by Work Institute in the U.S).
By leveraging economies of scale, a third-party firm can offer cost-effective solutions that minimize the burden on in-house resources.
Additionally, by streamlining processes and leveraging the third-party firm’s specialized expertise, investment firms can improve the efficiency and accuracy of their performance measurement and reporting processes, potentially leading to further cost savings.
Unmatched expertise and up-to-date knowledge
Navigating complex regulatory requirements and delivering accurate, compliant performance measurement solutions is not a simple task. By outsourcing to a third-party, firms can tap into a team of experts with unparalleled industry knowledge and experience. This increases your workforce of specialists that are solely focused on performance measurement and reporting functions.
These experts possess a deep understanding of industry standards, best practices, and the nuances of investment performance calculation methodologies. By leveraging their expertise, investment firms can ensure their performance programs are robust, reliable, and in line with the latest regulatory guidelines.
Reallocating this specialized function to an outside organization that has high levels of subject matter expertise helps free up internal resources, and in turn deliver value and improved outcomes.
This expertise is crucial in an industry that is rapidly evolving and subject to changing regulations.
Depending on the vendor selected, a third-party firm can provide a wide range of services, including portfolio and fund-level performance calculations, composite maintenance, compliance and verification oversight, and other performance-related statistical calculations.
These comprehensive services can enable investment firms to access end-to-end solutions for their investment performance program needs, ensuring a seamless and integrated approach to performance measurement and reporting.
This allows investment firms to focus on their core competencies and strategic objectives while still meeting the demands of their clients.
Engaging a reputable governance, risk, and compliance (GRC) firm is critical when considering risk mitigation. By leveraging the third-party firm’s expertise and resources, investment firms can reduce the likelihood of errors, omissions, and non-compliance with regulatory requirements. This can have significant consequences in terms of penalties, reputational damage, and loss of investor confidence. Furthermore, engaging a third-party firm with strong GRC expertise can help firms identify and address potential risks proactively, ensuring a more robust and resilient investment performance program.
Download our white paper
Continue to explore the many benefits of engaging a third-party service provider to oversee and manage your investment performance program in our white paper.
This white paper will:
- Explore the case for managed services – a form of outsourcing – to address contemporary industry trends and concerns that are making the investment landscape increasingly complex and competitive.
- Examine best practices investment managers should be aware of when utilizing a managed service provider to help ensure a successful relationship.
- Debunk common concerns, discover best practices, and uncover solutions to help firms overcome perceived challenges.
- Look into real-scenario case studies, such as this one, to see how firms benefited from performance managed services.
How we help
Utilizing ACA's Managed Performance Services solutions allows firms to leverage unparalleled expertise, scalable solutions, and significant cost savings. In addition, collaborating with us can enhance service offerings, strengthen risk mitigation, simplify the intricate investment process, and seize opportunities for growth and innovation.
Firms can outsource all or certain aspects of their performance measurement and reporting functions with the assurance they are working with a team that not only understands the technical aspects of calculating complex performance, but also knows industry best practices and regulatory expectations. Our suite of services includes:
- Portfolio and fund performance calculations
- Composite management and performance calculations
- Global Investment Performance Standards (GIPS®) compliance oversight and verification management
- Risk and other performance-related statistics calculations
- Gross and Net Money Weighted Return calculations (fund and deal level IRRs)
- Private fund management fee and performance-based fee review and reconciliation
If you would like to get in touch with our team today, we're ready to help. Start a conversation with us here.