Latest whitepaper on why outsourced trading is becoming mainstream for funds as it delivers:
- Immediate cost savings and efficiencies
- Lower operational risk
- Enhanced transparency
- Improved governance
The next five years will bring significant change to the Australian investment industry and to superannuation funds in particular. Trustees and executives in the AUD2.8 trillion superannuation sector will be subject to the same oversight as bank chiefs, millions of dollars in fees will be abolished, and workers will only be able to be defaulted into an account once – in a once-in-a-generation set of changes recommended by the Banking Royal Commission.
The superannuation industry serves a critical function for both the public and private sector in Australia. But despite its obvious success, the sector faces an increasing number of challenges - relentless rise of costs, technology investment, increased regulatory scrutiny, high fees and poor performance of some external managers. As a consequence, many funds are now reviewing their operating models to see where cost savings can be made.
Super funds have realised that in-house management may not only reduce costs and improve scale, operating efficiencies and bargaining, but can also drive best practice through enhanced risk management and asset allocation. Some are responding by insourcing their funds, indexing a large proportion and running the active portions internally. This may also occur as many super funds struggle to demonstrate the clear benefits of having investment management run by external managers.
Insourcing value, outsourcing cost:
Unfortunately, while bringing assets in-house has many benefits, it also has its challenges - high costs to build and develop a trading desk, having the proper people and technology in place, implementing new operating procedures and complying with regulation. While those with sufficient size and scale may still adopt the insourcing route or build on current capabilities, others might look to outsourced solutions for some or all of their trade execution and processing requirements.
Outsourced trading enables both small and large funds to insource the value component of their operating models while outsourcing the costs by. It minimises operational complexity and improves efficiencies. It enhances transparency and improves governance. Funds don’t have to navigate the changing regulatory regimes on their own. Outsourced trading can help funds access all available market liquidity and provide a single point of contact to manage multiple broker relationships; critical in a liquidity environment that is rapidly fragmenting. With investments in state-of-the-art Transaction Cost Analysis tools and global expertise in markets around the world outsourced trading can help improve execution performance. Perhaps most importantly, outsourced trading frees up time and resources allowing fund managers to focus more on the critical role of delivering alpha to their investors.
Read our full paper to learn more about this trend that’s happening with asset owners and pension funds across the globe, and understand how Northern Trust, a client-centric custody bank with a long history in outsourcing, a global presence and unrivalled access to liquidity, can offer all the benefits of outsourced trading, in a safe and secure manner.