Communication key to smooth lift-outs as outsourcing arrangements grow

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In any market environment, fund managers are looking to focus on finding alpha. Increasingly, this has meant transitioning their operations to outside firms. Unlike an outsourcing arrangement where the fund manager outsources some services to a third-party provider, lift-outs involve fully outsourcing investment operations to a third party – and often, having the operations team move over. The team, now better resourced and bolstered by the technology and expertise of the service provider, then focuses on the fund manager’s account, which ensures a high level of service..

The appetite for lift-out outsourcing arrangements grows as complexity rises and available resources shrink. SS&C Technologies has completed multiple lift-outs for 36 years, including an outsourced administration arrangement with USAA Real Estate earlier this year. Eamonn Greaves,Managing Director, discusses the drivers behind this trend and the factors managers mulling such a move should keep in mind.

Why are lift-outs attractive in the current environment and what is the outlook for lift-outs in different markets?  

Lift-outs have several advantages. They generally happen more quickly than a traditional outsourcing relationship, minimising the transition risk and moving the organisation closer to the target operating model. Additionally, the shift of the responsibility for the people, technology and processes, as well as streamlined process moves immediately to the service provider, which allows the initiating organisation to derive instant benefit. Lift-outs work inall types of markets and market participants, providing meaningful benefits to firms considering this approach. 

What should investment managers consider as they embark on a lift-out journey?

Choosing the right partner should be first. A partner with experience executing lift-outs and acquisitions and a track record of process improvement and target operating models are critical to success.The right partner should have professional projectmanagement practice to coordinate all logistics, including people, processes, technology, real estate and transition services agreements.

What do managers need to consider to ensure an effective lift-out?

There can be many decisions along the path and we found the reasons firms embark on lift-outs aren’t always the same. Some reasons are re-focusing on core competencies, generating scale, rationalizing in-house systems, or ensuring employees move to a firm where they have career growth. Most managers need to consider not only the short-term but also how this will affect their long-term business plan.

What challenges can they face in performing a lift-out and how can these be mitigated?  

Communication is key. Employees moving to the service provider will want to know why the decision was made, how it impacts them and what the changes mean. Therefore, the talking points around why this is happening, the reasons for the decision, the benefits to the organisation, and the process of choosing the right partner are all important. Additionally, identifying a retained layer of staff to provide oversight is critical and the decision around who those employees are is vital.

Eamonn Greaves, managing director, SS&C Technologies

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