[ I N D E P T H | O U T S O U R C E D T R A D I N G ]
and technology in-house .
“ Many of these mangers are multi-asset class who may manage FX related to fixed income in-house , then lean on a provider to solve for equity related FX , coverage of restricted markets , or for rules-based share class and portfolio hedging programs ,” explains Burke .
In The TRADE ’ s inaugural Outsourced Trading survey , it was discovered that around 72 % of clients had less than $ 5 billion in assets under management , 15 % had between $ 5-10 million , 8 % were in the $ 10-50 billion category while 2.5 % were in $ 50- 100 billion and another 2.5 % in the $ 100 billion-plus range .
While historically , this has very much been a space taken up by smaller funds – some large funds are demonstrably turning , or have turned , to these solutions . So , with ever-larger players making real moves in the space , what ’ s next on the agenda ?
“ Many articles have reported that better execution and costeffectiveness are the principal motivations behind outsourcing , but we have noted the ability to cover multiple regions and asset classes are just as important ,” Gray tells The TRADE .
Looking ahead , he shares that he foresees the next phase to be towards key players investing significantly in their offerings , providing services in a wider range of asset class coverage , such as fixed income , and also , importantly , emphasises the potential for further consolidation in the market .
Speaking from the Jefferies viewpoint , he shares that “ from a technology standpoint , the ability to not only access but develop your own proprietary trading software will continue to be important .”
In the same vein as Gray , Crowe also highlighted a trend of expansion into further asset classes , away from just equities : “ Fixed income is probably the next most logical volume traded asset class in the market […] but there ’ s also a lot of further interest in derivatives and other instruments .”
In terms of consolidation , the market has seen a range of key moves in recent times as firms seek to further deepen relationships and widen their reach .
Earlier this year , State Street acquired CF Global , a significant development in the outsourced trading world , which allowed the firm to considerably expand its geographic reach . Just prior to this , commodities specialist Marex completed its acquisition of TD Cowen ’ s outsourced trading and prime brokerage business .
“ As the industry has begun to mature , each offering is becoming more clearly defined . The reality is many are not prepared to make the significant investments required to maintain or grow their share of the market .”
DEAN GRAY , HEAD OF EMEA OUTSOURCED TRADING , JEFFERIES
Both transactions , among others , could fairly be considered a net reduction in the community , however the synergistic approach has been widely hailed as the future as the industry continues to battle costs , keep up with increased global correlations , and maintain effective processes . The industry will therefore likely see consolidation continue .
Evidently , the gap between the most successful players in the space and ‘ everyone else ’ is continuing to grow ever wider . As the market ramps up in terms of the size of key players , heavier expectations on providers , and the consistent battle to strike the best balance between costs and effective trading , outsourced trading strategies are set for continued and significant evolution . The future landscape looks set to be markedly different to what the market is seeing today .
14 // Outsourced Trading Handbook // 2024