Confirmation that Barclays Global Investors has outsourced the bulk of its European investment operations to JPMorgan Worldwide Securities Services adds weight to the argument that, at last, the practice of fund managers outsourcing their middle and back offices to custodian banks has reached maturity. The spectre of the failed Schroders deal is fading, and the assumption can fairly safely be made that going forward outsourcing will be the norm rather than the exception for investment managers seeking to maximise middle and back office efficiencies while focusing on their core competencies.
Can the same be said of outsourcing reference data management? It would seem not. There is no shortage of providers stepping up to the plate with managed reference data service offerings, but uptake has been slower than expected and, indeed, some of the deals signed have ultimately failed to come to fruition. The theoretical arguments in favour of outsourcing what is viewed by many as the non-core competence of data management – particularly for tier two and three firms – are strong. It’s getting financial institutions to put the theory into practice in any significant numbers that is proving difficult. The problem is a lack of maturity. One industry watcher uses the analogy of a cold swimming pool – it’s perfectly comfortable when everyone’s in the water and splashing around, but no-one wants to be the first to take the plunge.
The fate of managed reference data services is currently anyone’s guess. That said, if the investment operations outsourcing experience is anything to go by, sense will probably ultimately prevail, assuming the providers stick around in the business long enough to be there with solutions when the potential users of such services pluck up the courage to dive in.
The two types of outsourcing do overlap of course, as has been brought to the forefront of minds recently by the Mellon/Bank of New York merger, bringing under the same umbrella as it does two providers of investment operations outsourcing and the Eagle and Netik data hub products. Part at least of the stated aim of BONY in purchasing a majority stake in Netik was to use its InterView product to support its outsourcing business, and Mellon has gone so far as to build a data management outsourcing prop-osition around the Eagle technology.
Another question raised during 2006 is whether the “enterprise data management” approach is actually resonating among financial institutions, or whether in fact firms’ investment in improving data management is more likely to be tactically driven, and this question is relevant here. As one Reference Data Review reader observed to us recently, if there is a section of the marketplace for which an enterprise strategy makes perfect sense, it’s the banks seeking to build investment operations outsourcing businesses. They need a single, comprehensive platform to service the middle and back office needs of multiple asset manager clients, and having a coherent reference data management capability is a prerequisite for success in this. So, it could be that a slightly different hue of outsourcing has a profound impact on the enterprise data management industry in 2007, as the existing and would-be providers of middle and back office outsourcing services seek to get their data houses in order to compete effectively in this crowded marketplace.