A BNP Paribas Securities Services survey of asset managers and asset owners, conducted in partnership with Sionic, has found that 21 per cent of institutional investors are considering outsourcing their dealing function in the next 18 to 24 months.
The survey found that this trend is driven mainly by cost pressures and the increasing need for institutional investors to have access to 24-hour specialist dealing services as they diversify their investment strategies across different regions and asset classes.
Other drivers include the need to reduce operational risk and improve execution outcomes through connectivity to a greater range of brokers. Respondents also cited the need for regulatory support – particularly on the transaction cost analysis front – and the need to keep up with the latest technological advances as market fragmentation makes execution more complex.
Thomas Castiel, Head of Dealing Services at BNP Paribas Securities Services, says: “Outsourced dealing offers an interesting alternative to setting up an internal dealing function. It’s a less mature market than outsourced middle office for example, but things are changing fast. In addition to hedge funds and small boutiques, which were early adopters of outsourced dealing services, we now see larger investment managers looking to outsource their dealing operations to support their development in different regions and assets classes with a cost-effective solution.”
Clare Vincent-Silk, Partner at Sionic, says: “The dealing role has evolved and become more sophisticated as new trading methods and venues have appeared. With MiFID-driven market fragmentation, the role of the dealer has become less administrative and more specialist. However, not all dealing teams have the capability to deal with the new world.”
The research includes the input of 30 investment managers based in Belgium, France, the Netherlands, Portugal, Switzerland and the UK, which were surveyed by Sionic in February and March 2019. These investors range from in-house pension managers, wealth managers, and institutional fund managers through to large global managers.