Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
Asset Servicing | May 29, 2024

Outsourced Trading Isn’t Just a Cost Play, It’s a Quality Play

In today’s economic landscape, asset managers are increasingly focused on driving quality to attract and retain assets. Consider these findings from a recently published survey of 300 global asset managers from Northern Trust and WBR Insights that aims to assess trends in asset management: managers identified their top strategic priorities in the next two years as enhancing quality and accuracy (72%), followed closely by their desire to improve the investor experience (70%).  

While cost considerations were a focus for 46% of survey respondents, there is a growing realization amongst managers that there are viable alternatives to increasing alpha beyond cost cutting. This has brought the idea of partial or full trade outsourcing deeper into the front office. Traditionally, outsourced trading has been seen as a way to control costs. Given the caliber and range of providers in the market, if cost control is a manager's main goal with outsourcing, their focus may be too narrow. Today, outsourcing is often seen as much a way to improve the quality of operations as it is a way to reduce costs.

The use of outsourcing providers in the back-office space continues to grow and evolve, but outsourcing front office capabilities is also something that more firms are now prepared to consider. This would include outsourced trade execution and currency management. This becomes even more crucial as managers continue to grapple with a difficult landscape and market change such as T+1 settlement. By leveraging an end-to-end outsourced trading solution, managers can improve the quality of their trade execution through enhanced expertise, technology, analytics and governance.

Expertise That Increases Quality Levels

In the intensifying battle for alpha, many managers are looking at different avenues for growth, as reflected in our survey. When asked in what asset classes managers plan to increase distribution, 71% identified infrastructure, 54% identified digital assets and 49% said real estate. But expanding into new asset classes often comes with a price: increased complexity. Managers may lack the market knowledge and access needed to enter new asset classes and markets, and they may not have the expertise in place to execute trades with the highest levels of effectiveness and efficiency. An outsourced provider will usually offer global trading capability from multiple desks in multiple regions, staffed with wide-ranging expertise and skills that managers can tap into, including expertise in local/regional markets and numerous exchanges across asset classes.  For instance, for a firm entering markets in the APAC region for the first time, a global provider can offer expertise in local market trading and settlement to help with activities such as trade oversight and foreign exchange execution at a low variable cost.

Technology Comes with A Price

Another key benefit of outsourcing is avoiding the need to build or retire their own complicated technology stacks that support elements of the trade lifecycle.  As managers expand, they will likely require sophisticated technology to execute increasingly complex trades. This is often unavailable to managers in-house, and costly to do. Without help from global outsourcing or co-sourcing providers, it may be inaccessible to smaller or mid-size firms who struggle to compete with larger managers. However, providers can offer expertise in executing trades efficiently and at optimal prices, leveraging advanced trading technology and execution algorithms. Providers often have access to advanced data analytics and visualization tools that can illustrate past performance to improve decision-making, and artificial intelligence (AI) and machine learning capabilities that automatically sift through reams of market data to identify new opportunities. Another benefit of working with a provider is the built-in ‘tech support.’ They will typically handle technology issues, upgrades, and maintenance, creating a more seamless trading experience.

Best Execution and Trade Cost Analysis

Given the widespread availability and precision of trade-related data, managers should expect their counterparts to be able to fully support them in explaining Best Execution regulatory requirements and trade cost analysis. The results of both can make a meaningful difference when choosing providers. Managers should be able to expect open, mutually beneficial, data-based conversations about execution performance, choices of venue, choices of benchmark, slippage, information leakage and other key elements of broker performance. These can and should be much more sophisticated than simply ‘price achieved’.

Governance Key to Execution Quality

Throughout each step of the trade lifecycle, managers rely on keen attention to detail to ensure they’re staying compliant and effectively managing risk while avoiding pitfalls such as information leakages. In order to avoid making costly mistakes, managers require a robust risk management system framework that can keep up with them in real-time. Rather than resourcing this in-house, managers can effectively slot an outsourced provider into their existing operating model to assist with oversight, advisory, monitoring, surveillance and reporting activities. This allows managers to focus on their core business activities that are needed to generate alpha and scale effectively. 

Outsourcing Isn’t Just About Cost, It’s About Quality

Many managers are evolving their operating models to match a changing market, and they are increasingly widening their scope to include outsourcing various functions in the front office, such as the trading desk. Nearly 30% of the respondents to our survey who have not yet outsourced identified trading as a function they would outsource. While managers have consistently focused on cost in recent years, they are now turning their attention to outsourcing for its potential to increase the quality of their execution. 

Meet The Experts

Check
Navigate to undefined

Stephanie Farrell

Head of Integrated Trading Solutions, Americas

Check
Navigate to undefined

Amy Thorne

Head of Integrated Trading Solutions, EMEA

Check
Navigate to undefined

Robert Arnott

Head of Brokerage, APAC

IMPORTANT INFORMATION AND DISCLOSURES – MARKETING COMMUNICATIONS:

© 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation.

Northern Trust Banking & Markets is comprised of a number of Northern Trust entities that provide trading and execution services on behalf of institutional clients, including foreign exchange, institutional brokerage, securities finance and transition management services. Foreign exchange, securities finance and transition management services are provided by The Northern Trust Company (TNTC) globally, and Northern Trust Global Services SE (NTGS SE) in the European Economic Area (EEA). Institutional Brokerage services including ITS are provided by NTGS SE in the EEA, Northern Trust Securities LLP (NTS LLP) in the rest of EMEA, Northern Trust Securities Australia Pty Ltd (NTSA) in APAC and Northern Trust Securities, Inc. (NTSI) in the United States. For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures.

This communication is issued and approved for distribution in Australia and New Zealand by NTSA, in the United Kingdom by NTS LLP and in the EEA by NTGS SE. Please see below for regulatory status disclosures for Northern Trust’s legal entities. This communication is provided on a confidential basis for the sole benefit of clients and prospective clients of NTSA, NTS LLP or NTGS SE and may not be reproduced, redistributed or transmitted, in whole or in part, without the prior written consent of NTSA, NTS LLP or NTGS SE. Any unauthorised use is strictly prohibited. This communication is directed to clients and prospective clients that are categorised as (i) ‘wholesale clients’ in Australia and/or New Zealand and (ii) as eligible counterparties or professional clients within the meaning of Directive 2014/65/EU on markets in financial instruments (MiFID II), or in the UK, as amended by the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only. NTSA, NTS LLP and NTGS SE do not provide investment services to retail clients.

This communication is a marketing communication prepared by a member of the NTSA, NTS LLP or NTGS SE Sales or Trading department and is not investment research. The content of this communication has not been prepared by a financial analyst or similar; it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This communication is not an offer to engage in transactions in specific financial instruments; does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of individual investors. NTSA and NTS LLP do not engage in proprietary trading, and NTSA, NTS LLP and NTGS SE do not engage in market making in securities or corporate advisory activities. NTSA, NTS LLP and NTGS SE do not hold a proprietary position in any of the financial instruments or issuers referred to in this communication, unless otherwise disclosed.

This communication may contain investment recommendations within the meaning of Regulation (EU) No 596/2014 on market abuse (MAR), and in the UK, as amended by the Market Abuse (Amendment) (EU Exit) Regulations 2019. For more information about NTS LLP and NTGS SE’s investment recommendations please refer to the author’s MAR link provided in this communication, where applicable.

CONFIDENTIALITY NOTICE: This communication is confidential, may be privileged and is meant only for the intended recipient. If you are not the intended recipient, please notify the sender ASAP and delete this message from your system.

PRIVACY NOTICE: Please read our privacy notice at northerntrust.com/privacy-policy to learn about how we use the personal information you may provide and the rights you have in relation to it.

ABOUT NTS LLP: NTS LLP is registered in England & Wales under number OC324323; registered office: 50 Bank Street, Canary Wharf, London E14 5NT; authorised and regulated by the Financial Conduct Authority; member of the London Stock Exchange.

ABOUT NTSA: NTSA is registered in Australia (ABN 79 648 476 055); registered address: Level 12, 120 Collins Street, Melbourne, VIC 3000, Australia; place of business address: Level 40, 225 George Street, Sydney, NSW 2000, Australia. NTSA holds an Australian Financial Services License (No. 529894) and is authorised and regulated by the Australian Securities & Investments Commission.

ABOUT NTGS SE: NTGS SE is registered in Luxembourg under number B232281. Registered office: 10, rue du Château d’Eau, L-3364 Leudelange, Grand-Duchy of Luxembourg. Northern Trust Global Services SE is an authorised credit institution in Luxembourg under Chapter 1 of Part 1 of the Luxembourg law of 5 April 1993 on the financial sector. It is authorised by the European Central Bank (ECB) and subject to the prudential supervision of the ECB and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF). NTGS SE, UK Branch: UK office is at 50 Bank Street, Canary Wharf, London E14 5NT. Authorised and regulated by the European Central Bank and Luxembourg Commission de Surveillance du Secteur Financier. Authorised by the Prudential Regulation Authority and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

NOTICE TO U.S. INVESTORS: NTS LLP and NTGS SE are not U.S. registered brokers or dealers, and they are not registered with the Securities and Exchange Commission or members of FINRA. This communication is intended only for “major U.S. institutional investors” and is not intended for individual or noninstitutional investors and should not be distributed to any such individuals or entities. Interested "major U.S. institutional investors" should contact Northern Trust Securities, Inc. (NTSI), our U.S. registered broker-dealer affiliate, or another U.S.-registered broker-dealer, to effect transactions in any securities discussed herein. Northern Trust Securities, Inc. (NTSI), Member FINRA, SIPC and a subsidiary of Northern Trust Corporation. Products and services offered through NTSI are not FDIC insured, not guaranteed by any bank, and are subject to investment risk including loss of principal amount invested. NTSI does not accept time sensitive, action-oriented messages or securities transaction orders, including purchase and/or sell instructions, via e-mail. Additional disclosures are included in the link, see northerntrust.com/ntsidisclosure.