An asset management firm’s middle-office operations have become a significant operational component that is often untapped, despite an inconsistent definition, according to a report by SEI.
SEI’s ‘Middle Office: A hidden source of competitive advantage’ report revealed that one in four asset management firms now dedicate 20% or more of total operating expenses to middle-office functions.
Another 37% of respondents said that they spend 11% to 19% of their total operating costs on middle-office operations, while diversified investment managers cited spending a little more on the same than strictly alternative managers.
Nearly 91% of respondents said that they intend to spend more on middle-office technology over the next 12 to18 months.
The study also highlighted regulatory compliance as one of the biggest operational challenges for asset managers. Data management was cited as the single most important challenge, followed by legacy IT systems and complex investments.
A more competitive business landscape, tougher regulations, growing investor demands, and complexities related to globalisation of products are compelling firms to re-assess their operational capabilities, the study said. As a result, some firms are outsourcing arrangements and some are adopting more sophisticated middle offices to support complex investment operations.
SEI executive vice president and SEI Investment Manager Services division head Stephen Meyer said: "Our research backs up our belief that the middle office has emerged as a critically important operational component of investment firms globally whether they manage long only, alternative or hybrid strategies.
"Sophisticated managers are looking beyond the status quo to transform their middle offices from being mere support functions to a source of long-term strategic organizational value."