Asset Managers Farm out Outsourced Trading as Costs and Complexity Climb
Our Founding Partner and CEO Ben Arnold, was interviewed by Reuters for his view on the fast-growing outsourced trading sector in the era of algorithms and automation.
Article Summary:
LONDON (Reuters) – It’s 10 o’clock at night, and Benjamin Arnold’s day is just beginning. The former Goldman Sachs trader is gearing up to trade equities in Asia from his small office thousands of miles away in Park City, Utah. He’s not trading his own book, but rather is taking orders for a client, an Asian asset manager. After almost 15 years working at hedge funds and banks, Arnold launched an outsourced trading firm, joining a growing crop of niche companies aiming to tap burgeoning demand for outside help from small and mid-sized asset managers.
“There comes a time when you have to decide between standing by and watching the world change or stepping up and becoming that change,” the 37-year-old, Arnold said.
A heavier regulatory burden on money managers, razor-thin margins and rapid technological developments in trading are driving many to cut costs and hire outside firms to handle their day-to-day trading. The pace of demand has accelerated this year in particular as asset managers feel the pinch following the introduction in 2018 of the EU Markets in Financial Instruments Directive (MiFID II) which slapped more onerous paperwork on them. It is as much as 40% cheaper for small to medium-sized fund firms to hire an external trading company than employ two traders themselves, according to interviews with executives from more than a dozen asset managers, banks and brokerages, as well as industry experts.
One in every five fund firms with over $50 billion worth of assets will outsource some portion of their trading desks by 2022, according to research by financial consultancy Opimas.
The practice of farming out trading functions has been around for years, but it is becoming increasingly attractive for small and mid-sized asset managers who may not be trading frequently or in big enough volumes to justify the cost of maintaining an in-house desk. Opimas estimates it works out cheaper to hire an outsourced firm if an asset manager’s equities trader is handling less than $1.5 billion in annual trading volume.
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