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Outsourcing Trading

A solution in a challenging environment

Being an asset manager in today’s market can be a bruising experience. Margins are shrinking and fees are under pressure, while operating costs have grown out of proportion. This is happening in tandem with unpredictable markets, making alpha creation for clients exceptionally difficult. Cost-saving opportunities have to be identified wherever possible in a way that does not compromise the integrity and success of the business. Linear Outsourced Trading has sponsored this paper to look at some of the trends which are pushing asset managers towards outsourcing their trading desks to third parties.

The cost burden

It is no secret that active asset management returns have not been in line with investor expectations. In a forceful indictment, the UK Financial Conduct Authority (FCA)’s Asset Management Market Study Interim Report stated that active asset managers routinely underperformed their benchmarks after fees. It also questioned why the industry’s fees had not fallen as competition proliferated, something which has occurred in the passive fund sector, where there has been a race to the bottom on investor charges. All of this has contributed to the enormous growth in lower-margin passive products, which, despite a fivefold increase in the UK since 2005, are still expected to gain market share.

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