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Investment Operations Outsourcing - Align Your Core Values

February 15, 2013
Author: Patrick Murray, President & CEO

EXTON- To outsource or not to outsource? Should I outsource my entire back office, or only one function? How do I know I can trust an investment operations outsourcing or fund administration service provider? Will the team dedicated to my account be as good as my own people?

These are common questions that investment management firms are faced with when evaluating the investment operations outsourcing question.

There are a number of reasons to outsource investment operations or back and middle office operations including:

Ineffective accounting software functionality

  • Derivative processing
  • Poor investment operations reporting
  • Poor security type coverage
  • Poor integration with custodians and prime brokers
  • Lack of flexibility
  • Poor systems integration
  • "Workable Workarounds"

Total Cost of Ownership

  • Focus on Core Competency of Money Management
  • Control Risk (lack of SSAE16/SOC 1/SAS70)
  • Senior Management allocated time and Opportunity Cost
  • Servers, Power, A/C, Disaster Recovery
  • Software Licenses
  • Software Upgrades, Patches, Implementations, Integrations
  • Reference Data Licenses
  • Information Technology Resources
  • Internal Operational Resources
  • Excel and Access Integration for work arounds


  • AUM increase/decrease
  • New products
  • New markets and security types
  • Coverage

Poor Data Quality and Integrity
Lack of Investment Operations and Technology Expertise
Regulatory Compliance Struggles

  • Workflow Improvement
  • Poor and Inflexible Reporting
  • The reasons and economics to outsource investment operations and fund administration may be clear, but when it comes down to making the decision to move to an independent third party how do you ultimately trust that service and competence will be excpetional?

    Aside from starting with a phased or iterative approach and having a proper Service Level Agreement (SLA) in place to protect the firm contractually, alignment of company cultures and core values is essential between the investment manager and the service provider. For investment operations outsourcing to really work well so that the service provider is effectively your office down the hall, the investment manager and investment operations outsourcing service provider need to share the same values as companies and as people to make this critical integration point gel. Managing money is a demanding business where teamwork, competence, control, accuracy, and ethics are paramount to success. Unfortunately, there are quite a number of cases where one or more of these characteristics were not important which in many cases came with significant consequences such as financial penalities, trading losses, loss of clients, loss of entire business, and prison time.

    In the case of STP Investment Services,

    We are..

    • Innovative
    • Accurate
    • Passionate about Service
    • Ethical
    • Adaptable; and
    • Continuously Improving

    Our people are...

  • Genuine
  • Respectful
  • Consistent
  • Sharp
  • Creative
  • Detail-Oriented
  • Dedicated
  • Flexible; and
  • Team Players
  • When choosing an investment operations outsourcing service provider, you should be joining forces with a team of people who are a simple phone call away that can not only handle recurring operations, but can scale and be adaptable to changing regulation and an evolving business. To answer the question of trust for the investment manager, one needs to know the core values of the service provider as a firm, the make-up of the people that will be handling the operation, and examples of how the firm/people have put these values into action. If these values align and their is proof that the list is not merely a bunch of buzz words that are not actively practiced, then you are well on your way to trusting your investment operations outsourcing service provider or fund administrator.

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