Forefront Communications

Reuters: Asset Managers Farm Out Trading As Costs And Complexity Climb

Alexandra Hamer

Alexandra Hamer

The gap in the market being filled by boutique outsourcers, like Fillmore, Arnold’s Meraki, Tourmaline Partners and CF Global, is prompting some big banks and brokerages to try to grab a slice of the action.

Northern Trust Corp and Jefferies Financial Group, for example, have set up their own outsourcing teams of traders working for a range of clients.

Such outsourced trading desks effectively work as units of “buy-side” investors like asset managers, and include all the analysis, administration and compliance services an in-house team would provide. They are distinct from a bank or brokerage’s regular “sell-side” trading operations which simply execute trades on a client’s behalf.

One in every five fund firms with over $50 billion worth of assets will outsource some portion of their trading desks by 2022, according to research by financial consultancy Opimas. Global revenues in the outsourced trading business are about $450-$500 million annually and expected to grow 20-30% a year, it said.

The practice of farming out trading functions has been around for years, but it is becoming increasingly attractive for small and mid-sized asset managers who may not be trading frequently or in big enough volumes to justify the cost of maintaining an in-house desk.

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