Many small hedge funds, asset managers and wealth management firms are seeing big returns from outsourcing their back office, reconciliation, reporting and compliance functions. This white paper describes how to tell if outsourcing makes sense for your company.
By Stephen Van de Wetering, Founder of Empaxis Data Management
The fundamental reason to outsource all or part of your operations is to allow you and your key team to focus on those areas you truly shine: serving the client. Outsourcing isn’t a panacea, but can have a positive impact on your ability to improve both your operations and client support.
Considering Investment Operations Outsourcing: Questions to Ask
How big is your firm?
Outsourcing can have a significant positive impact on large firms but small-to-medium sized firms (up to 12 or so employees working in operations) tend to have the greatest immediate return. These firms tend to have people who are already stretched thin, often working in areas in which they are less familiar or where they don’t have high levels of competence. In general, you will see the greatest ROI in firms with the fewest number of operational team members.
Is your firm growing quickly?
Particularly for smaller firms, the fact that you are growing as a company and/or your performance is hot might make you a great candidate. Outsourcing all or part of your back office operations can deliver instant additional capacity and better controls around your growth. Outsourcing also avoids redundancy of staff and frees you to focus on client support and areas that effect your firm’s profitable growth.
Are there errors in your reports or with your reconciliation breaks?
Accuracy is essential in successfully supporting financial services clients. If you are finding that key items are missed in client reports or if breaks are causing trading errors, it is likely a sign that you may not have adequate controls in place. This is often due to staff members wearing too many hats or working in areas outside their strengths. It is difficult to invest the requisite amounts to build a world-class operation. Giving this work to specialists can improve the quality of the reporting while freeing people to spend more time with clients.
Are you having a tough time retaining your people?
This might be a sign you have people not receiving the opportunities they are seeking in investment management. Due to the small size of the firm, you will find people working in the reporting, reconciliation and operations areas when their intent was to be an analyst or portfolio manager. By delegating these operational roles to a quality outsourcing firm, your future hires will be more aligned with your business and you will retain your people longer.
Further, outsourcing needn’t be an all-or-nothing proposition. Depending on your firm’s current needs, you can choose to engage a provider for only a portion of the operation. In one instance, a firm I worked with lost two of their five-member operational team in the same week. They were not looking to outsource anything, but by engaging us, were able to quickly back-fill the employees who left the organization. We have been working with them for about 5 years. They don’t want to have us do all of the work, but like the security of knowing that we can ramp up at any time.
Finally, are you at risk of the “Key Man” syndrome?
Is much of the information critical to running operations of the business concentrated in the hands of a one or two people? This leaves you with a lot of risk if that person leaves or is out of action for a substantial period. Partnering with a strong operations outsourcer assures you that the processing knowledge critical for your firm does not walk out the door when an employee leaves you. Multiple people will be able to step in to take over seamlessly, processes will be documented and controls will be in place to ensure consistent processing regardless of turnover.
Outsourcing all or part of your back-office functions offers the potential to both improve the quality of your firm’s operations and also to support the growth and scalability of your business. If some or all of the questions above describe your firm, it could be worthwhile scheduling a conversation with one or more of the strong providers in the outsourcing space.
Stephen Van de Wetering is the Founder and CEO of Empaxis Data Management, a premier providers of back-office services to small and medium asset managers, hedge funds and wealth management firms. You can reach him at 310-356-5831 or via email at Stephen@empaxis.com.