No More 'Sacred Cows' in Buy-Side Outsourcing

There doesn't seem to be much hope among buy-side firms that 2012 will be a smooth year. The eurozone is still fraught with uncertainty, the regulatory picture has yet to take shape, and as a result of these and other obstacles, there are fewer opportunities for firms to make money.

Alberto Corvo, managing principal of financial services at outsourcing firm eClerx, says his firm is seeing a lot of requests coming from the buy side for things that he never would have anticipated just a couple years ago.

"Things that people wouldn't consider outsourcing before—there are no more sacred cows," he says. "We are getting requests for things that, two years ago, I never would have thought would be up for discussion."

Corvo says eClerx will see more than 40 percent growth this year over last coming from the buy side, with most requests concerning anything that touches the regulators and compliance. Additionally, because investors are asking for greater detail in the information they receive, fund managers are having a tough time developing their own solutions to keep up with the demand.

Specific to the issue of firms trying to find new ways to make money, Corvo says hedge funds and fund of funds have been asking for solutions geared toward managed accounts.

"What I'm hearing is that even large hedge funds—years ago this would have been considered offensive—want separated accounts, managed accounts; it's becoming something they need to offer," he says. "They need to set up a platform to be able to deliver managed accounts; this is an issue for them. I was really surprised with how many requests we have been getting for this."

Obviously, Corvo has a dog in this fight. But I asked a few of my buy-side contacts on an off-the-record basis in order to get some honest feedback, and many of them said that they are looking more to third-party providers for front-end processes more so than past years; and most had already been banging the vendor-drum on the back office. Some pointed to the growth of cloud providers as evidence of this.

"It's a natural ebb and flow. When there is uncertainty, we have no desire to hire on staff to go after nonessential projects, especially when the market can tank at any moment. And with all this volatility, it's not like the markets are that great anyway," says one hedge fund technologist.

Since the credit crisis that took hold in 2008, it's no secret that the buy side has turned to outsourcing options in an effort to cut costs and reduce headcounts. This is a trend that is three years strong. It's also logical that as long as uncertainty persists, hedge funds will look to find new ways manage costs.

The vendor community seems primed to benefit from this.