The Case For Outsourcing

COVID-19 Reflections & Future Implications

As the financial services industry adapts to working remotely and tests business continuity, Outsourced Services and Providers have supported firms through this transition. Across the spectrum from new launches to established managers, we saw the majority of funds migrate to a remote set-up by mid March 2020. Below are our insights from clients, service providers and allocators on how firms are leveraging Outsourced Services and Solutions.

Key Considerations: Why are managers leveraging Outsourced Solutions and Services?

Back-up solutions

Operational continuity

Disaster recovery planning

Optimize internal infrastructure

Further bolster existing continuity policies

Access to an experienced team

Address key-man risk concerns

Minimize cost and disruption

Short-term spikes in volumes

Balance front and back office execution requirements

Redundancy provision

Enhanced compliance

Regional coverage

Flexibility to scale up and down

Increased comfort from the ODD community

Future Implications for Outsourced Solutions and Services

Events in our industry can have lasting impacts on businesses and best practices. We saw rise in importance of third party fund administrators to be the independent books and records for funds post Bernie Madoff.

Outsourcing may be the next endeavor for business continuity.

30% of managers we polled recently said they were more likely to consider outsourcing solutions and services as a result of COVID-19.

Trends in Outsourced Trading

Jefferies has observed a growing trend in New Launch Hedge Funds choosing to outsource their trading function at launch.

5 pie charts showing data. year 2016 with 86% in-house and 14% outsourcing. year 2017 with 70% in-house and 30% outsourcing. year 2018 with 56% in-house and 44% outsourcing. year 2019 with 33% in-house and 67% outsourcing. and 2020 year to date with 38% in-house and 63% outsourcing. Source: Jefferies

But it’s not just start-up hedge funds leveraging an Outsourced Trading Desk. Established Firms use Outsourced Trading to back-up their own trading solutions, and further bolster continuity policies.

The Jefferies Outsourced Trading Desk observed a significant increase in client activity and handled more inbound calls and trades from clients than any other month since inception in June 2018.

50% of the trading activity that Jefferies Outsourced Trading Desk saw in the month of March was from Established Hedge Funds and Long Only Firms.

IMPORTANT DISCLAIMER

THIS MESSAGE CONTAINS INSUFFICIENT INFORMATION TO MAKE AN INVESTMENT DECISION.

This is not a product of Jefferies’ Research Department, and it should not be regarded as research or a research report. This material is a product of Jefferies Equity Sales and Trading department. Unless otherwise specifically stated, any views or opinions expressed herein are solely those of the individual author and may differ from the views and opinions expressed by the Firm’s Research Department or other departments or divisions of the Firm and its affiliates. Jefferies may trade or make markets for its own account on a principal basis in the securities referenced in this communication. Jefferies may engage in securities transactions that are inconsistent with this communication and may have long or short positions in such securities.

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