Outsourced Trading Gaining Popularity
A new Greenwich Associates report, Outsourced Trading: Helping the Buy Side Improve Execution and Enhance Operational Efficiency investigates outsourced trading and the perception of U.S. institutional asset management and hedge fund professionals toward this growing industry.
Based on a research study conducted by Greenwich Associates in August and September 2018, the report outlines a diversity of offerings from outsourced trading firms and identifies the reasons that buy-side market participants are adopting these services in growing numbers.
Among those investment managers currently employing outsourced trading services 71% of respondents say they are “extremely satisfied” with their providers, and the three primary reasons for the satisfaction are the additional support for the investment manager's existing trading desk; cost savings; and improved execution performance.
“We’ve received substantial interest from the buy side in learning more about outsourced trading,” said Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology and author of the report. “Historically, only smaller or emerging managers had used outsourced trading, but we spoke with some firms managing over $20B in assets that now employ these services, and for a variety of reasons. We say to institutional investors that have considered outsourcing previously: it’s time for another look, as the product on offer is really developing and addressing today’s challenges in engaging with the sell side.”
Aaron Hantman, CEO at outsourced trading provider Tourmaline Partners, said: "The majority of the marketplace doesn’t yet know how closely outsourced trading works with the buy side. Outsourced trading desks work directly with their clients’ trading teams to extend their reach, working within their clients’ rule sets and compliance sets, trading with anonymity or attribution as desired, and using their resources and expertise to empower investors to find liquidity and research from other places, beyond what they’ve set up on their own.”
Greenwich Associates also outlined a process for firms looking at outsourced trading providers, which reviews the various corporate structures, execution capabilities and research/CSA offerings available as the industry grows and diversifies to include a wider range of providers.