What does the dealing desk start to look like?
Francis: There are now additional cost pressures on the buy-side in general but in particular firms need to increase spending on technology in order to keep up with market changes. As a result, asset managers are looking at different ways of reducing overall costs, from the trading area all the way to the middle and back offices.
Some firms are considering outsourcing some functions; particularly fields that may not necessarily be part of the core business. The core business of fund managers is to evaluate and choose stocks so some asset managers may feel that dealing is not necessarily a core function. Therefore, they may want to outsource the dealing function as well as the middle office and back office functions.
The reasons why firms look to delegate away the dealing function vary. Apart from the cost, the extent of regulation may be a factor, as well as market access. For example, a European firm looking to invest in Asia might well outsource the dealing function to a company like ours instead of setting up a dealing desk in Asia with its associated fixed costs. We would then be able to provide the execution capabilities and also continue to act as their internal dealing desk. In addition, we would continue to have a relationship with the fund managers in order to help them improve on the execution side and to continue to access the liquidity required.
Other firms are in-sourcing their assets – in particular, pension funds which typically have outsourced funds to other fund managers who are now considering in-sourcing part of their assets. They are building up their investment capabilities but they don’t want to have the burden of setting up different dealing desks in different regions.
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Keeping The Dealing Desk Ahead Of The Regulatory Curve
