Handbook of Investment Administration

Chapter 9

OUTSOURCING

9.1 INTRODUCTION

Outsourcing is where a firm transfers investment administration or other functions to a third party and has been one of the major features of investment operations for the last few years.

Outsourcing activity has grown as firms decide that they can operate more effectively if they focus on their areas of core competence, such as management of investment funds. In order to focus on their strengths, they transfer responsibility for functions such as investment administration to third parties who are able to make that activity their core competence.

The key point to remember with any outsourcing arrangements is that what is taking place is delegation of the investment administration activities. The firm may have appointed another firm to undertake some or all aspects of its investment administration activity but that does not mean that it has delegated responsibility for what takes place.

In making outsourcing arrangements, it is essential that the firm and the individuals responsible for managing the arrangement remember their responsibilities to their clients. They have a regulatory and fiduciary responsibility that can be summarised as: ‘you can delegate activity, but you cannot delegate responsibility’. This requires them to ensure that they have effective oversight on the performance and delivery of their supplier.

Many firms will have outsourcing arrangements in place and staff within the investment operations function are likely to be ...