The Rise of Outsourced Trading: A Strategic Shift in Buy-Side Operations

Cost Savings: The Primary Catalyst

The most immediate and quantifiable benefit of outsourced trading is cost reduction. According to a Russell Investments report, 60% of asset managers cited cost savings as the leading factor in their decision to outsource trading functions. This aligns with broader industry trends: a FinanceFeeds piece found that 33% of current users of outsourced trading reported reduced costs, while 55% noted increased operational efficiencies. Research from Sia Partners underscores that outsourcing can reduce labor costs by as much as 90% in certain markets, particularly in regions with lower wage bases like the Philippines.

The financial implications are stark. Maintaining an in-house trading team, including salaries, technology, and compliance infrastructure, can exceed $500,000 annually, according to Business Insider. By outsourcing these functions, firms free up capital for strategic investments while avoiding the overhead of maintaining redundant capabilities.

Operational Efficiency: Beyond Cost Reduction

While cost savings are a primary driver, the operational benefits of outsourcing are equally compelling. As Northern Trust's ITS explains, Integrated Trading Solutions offer 24/6 global trading coverage and end-to-end trade lifecycle management. This model streamlines workflows by consolidating pre-trade analytics, execution, and post-trade settlement under a single provider, reducing the need for coordination across multiple vendors. For instance, the Northern Trust example describes a client that leveraged ITS to enter energy and master limited partnerships (MLPs) without building internal expertise, achieving rapid market access.

Time efficiency gains are equally significant. Outsourced trading desks provide "follow-the-sun" coverage, ensuring continuous execution across time zones and eliminating operational gaps during holidays or staff shortages, as noted in a Traders Magazine article. This is particularly critical in fast-moving markets like the U.S., where the shift to T+1 settlement cycles demands faster execution and settlement, a point also highlighted in the Russell Investments report.

Strategic Reorientation: Quality, Governance, and Scalability

The strategic value of outsourcing extends beyond cost and efficiency. Asset managers are increasingly viewing trading as a non-core function, allowing them to focus on investment strategies while external partners handle execution. According to a Northern Trust/WBR survey, 72% of global asset managers prioritize enhancing execution quality, with 46% emphasizing cost control. This reflects a broader industry recognition that outsourcing is not just a cost play but a quality play-leveraging institutional-grade technology, liquidity access, and experienced traders to improve performance, as noted in a Citisoft blog.

Co-sourcing models further illustrate this shift. By combining in-house and external expertise, firms retain control over sensitive functions while benefiting from the scalability of external providers, as Russell Investments explains. For example, a Global Family Office in Asia used Northern Trust's 24/6 trading desk to manage workflow gaps during public holidays, ensuring uninterrupted operations.

The Road Ahead: A Mainstream Transformation

The rise of outsourced trading is no longer a niche trend. With 85% of North American and 86% of European asset managers reporting improved investment performance through outsourcing, according to a State Street survey, the model is gaining institutional credibility. Even large firms with over $50 billion in assets are adopting hybrid approaches, outsourcing non-strategic functions while co-sourcing complex tasks, a trend Russell Investments has observed.

Regulatory tailwinds, such as the transition to T+1 settlement, are accelerating this shift. Firms that outsource trading gain access to the infrastructure and expertise needed to comply with evolving standards without overhauling internal systems, as the Northern Trust analysis describes.

Conclusion

The rise of outsourced trading represents a fundamental rethinking of buy-side operations. By reducing costs, enhancing efficiency, and unlocking access to global expertise, asset managers are redefining what it means to compete in a complex, fast-moving market. As the industry continues to evolve, outsourcing will likely become not just a strategic option but a necessity for firms seeking to thrive in an era of relentless cost pressures and regulatory demands.