While the motivations for outsourcing back office functions continue to evolve, the challenges of successfully operating an outsourced or hybrid model persist. The intentions of early outsourcing
deals often revolved around achieving cost reductions, access to centers of excellence and the avoidance of significant technology investments.
More recently, these motivations have shifted a degree or two and tend to be driven by a corporate sense of core and non-core activities, as well as the desire to avoid major refurbishment projects of internal operating models and related technology.
In one sense this shift is profound, as there are now multiple examples of fund managers knowingly increasing operating costs as a consequence of outsourcing, which may seem both counter-intuitive and directly at odds with two decades of marketing by fund administrators.
The latter is an interesting discussion as it points to a dichotomy of efficiency and scalability that exists at a custody level but is not necessarily present at the fund administration level.