Ortwin Gierhake
Executive director, prime brokerage sales
It’s no secret that fund managers face daunting operational challenges. Staying competitive means keeping costs in check – especially fixed costs – while running a high-performance, agile operation.
For new and emerging funds, which are still finding their feet and may not have all the in-house capabilities they need, the problem can feel even more pressing.
The recent Standing Strong: Emerging Manager Survey 2024 underscores just how critical lean, efficient operating models have become – qualities investors value when assessing fund managers.
It highlights how emerging funds have kept operating expenses and breakeven costs below pre-pandemic levels, a testament to their adaptability and appeal as investors become more selective.
One strategy that’s proving particularly effective is outsourcing. It’s not just a way to cut costs – it’s a crucial tool for scaling operations and accessing expertise that might otherwise be out of reach.
Outsourcing providers can invest more in personnel and infrastructure that individual funds often cannot. By shifting fixed costs to variable ones, outsourcing offers flexibility, enabling funds to weather difficult periods while freeing up the balance sheet for what matters most.
Yet, despite these advantages, many fund executives still have lingering questions about outsourcing. These concerns are understandable, but in most cases, there are strong reasons to set aside preconceived notions and take a closer look at the value outsourcing can deliver.
“Far from a loss of control, outsourcing can provide access to a level of best practice and operational excellence that would be difficult to achieve in-house.”Ortwin Gierhake
A question of control
Management want to maintain control over their operations – it’s only natural.
For hedge fund COOs, any external dependency might feel like a vulnerability. Questions like; “Can the provider deliver the kind of performance we need?” or “How do we motivate external staff to align with our priorities?” are common. Funds may feel they have a lot less leverage over third-party staff than in-house personnel.
The reality is that outsourcing doesn’t have to mean giving up control. With a strong working relationship, funds can potentially enhance oversight and efficiency.
In fact, you can argue that external experts can increase control by giving access to deeper expertise and more refined processes. Providers with experience across multiple clients and sectors can deliver operational workflows that can be more advanced than anything most individual funds could build internally.
Service providers constantly improve their offerings based on client feedback. This ensures that funds benefit from solutions that have been tried, tested and optimised by specialists over time.
Far from a loss of control, outsourcing can provide access to a level of best practice and operational excellence that would be difficult to achieve in-house.
Keeping up appearances
It’s only natural for new funds to wonder how outsourcing might be perceived by allocators. If outsourcing is seen as filling operational gaps, could it raise concerns?
That stigma is largely a thing of the past. Across industries, outsourcing has become widely accepted as a strategic choice, and allocators understand that no firm can – or should – manage every function in-house.
Outsourcing isn’t about filling gaps; it’s about playing to strengths. By focusing internal resources on core capabilities and leveraging external providers for specialist functions, funds can position outsourcing as a proactive strategy rather than a reactive measure.
It’s a way to show allocators that resources are being used strategically and efficiently to have the most impact and drive results.
Relationship management
Some fund executives worry about whether outsourcing arrangements will work the way they want. The key is to stop viewing outsourcing providers as external. Experienced managers will tell you that staff from these providers need to be treated like an extension of the team.
For outsourcing to work, funds need to invest in the relationship. That means open communication, inclusivity and regular collaboration. By building strong partnerships, funds can ensure their providers deliver services aligned with their goals and expectations.
This approach also encourages funds to carefully vet potential providers to ensure they understand what each one can – and cannot – offer. A well-chosen provider becomes a true partner and valuable ally, strengthening operations without sacrificing control or quality.
“Across industries, outsourcing has become widely accepted as a strategic choice, and allocators understand that no firm can – or should – manage every function in-house.”Ortwin Gierhake
Weighing the pros and cons
While outsourcing may not be the right choice for every function, the benefits often outweigh the challenges. Cost efficiency, scalability and access to specialist capabilities make it a compelling option for many funds looking to optimise their operations.
At Marex, we work closely with funds to evaluate outsourcing options that align with their operational needs and growth ambitions.
And our outsourced trading team is a multi-award-winning provider of trading services – we’ve seen how outsourcing can transform business models and drive long-term success.
For funds looking to compete and grow in today’s market, outsourcing isn’t just an option – it’s a smart strategy for success.
