Ryan Fitzgerald featured in AIMA on the boom of Middle Office sourcing
27 March 2025 - In recent years, the alternative investment industry has witnessed a significant shift towards outsourcing for middle office, driven by the need for increased efficiency and scalability. Indeed, the Citco group of companies (Citco) data revealed a 27% year-on-year increase in the value of outsourced treasury transactions processed, reaching almost $2 trillion, in 2024.
While treasury management has historically been handled internally, the mindset among alternative asset managers, corporates and banks, is changing. Firms are taking note of the new opportunities for growth and innovation that arise when partnering with a specialist provider.
Balancing growth and efficiency
Many asset managers face a challenging mandate: to increase their assets under management (AUM) without increasing headcount. This ambitious goal is becoming increasingly unattainable without leveraging outsourcing solutions. As firms focus on their core competencies – risk management, portfolio management and, of course, generating alpha for investors – they're increasingly looking to partner with specialists to handle progressively complex middle office functions such as treasury and collateral management, OTC settlements, trade matching, and portfolio management.
What’s more, there are various developments across financial markets that are driving this trend, from regulation to investor requirements. In today’s world, managers are not trading in a single region, but across multiple jurisdictions around the globe. With new regulation coming in – such as the T+1 settlement which took effect this year in Canada, the US and Mexico – managers are now recognizing the increasing value in turning to service providers to deliver follow the sun coverage, saving them the expense of building global teams in-house.
Trade operations is another case in point. Managers want their trades matched efficiently and effectively – and having a third party take responsibility for this function gives them peace of mind.
However, this transition isn't a "big bang" approach. The success lies in the ability to develop technology, take over services, and provide clients with comprehensive data solutions tailored to their specific needs. Indeed, outsourcing providers must address concerns about relinquishing control over internally developed processes and demonstrate the value they can add.
Data integration is at the heart of this success. Leading providers have built connections for every major middle office, portfolio management, and accounting system, with the goal to take on processes and make them more efficient. Cloud-based systems now provide a single point of entry for all wire transfers – addressing the challenges faced by organizations with multiple administrators and providers.
On top of the automation solutions already established in Treasury, the introduction of Artificial Intelligence (AI) in treasury management is transforming the way corporate treasurers handle their cash inflows and outflows. Again, data is key here, as the main advantage of AI in treasury is that it helps make sense of huge amounts of technical information.
AI solutions can go further than just helping to make processes more efficient. They can also actively assist in decision-making. Based on the analysis of large amounts of data, AI models can provide valuable insights and can make decisions independently based on predefined rules and algorithms.
The Age of the Middle Office
We are on the cusp of a generational shift, with managers starting to see the benefits of major advancements outsourcing and the technology offered which they can utilize to help scale their own businesses faster. Citco's data revealed that collateral transactions outsourced in 2024 climbed by nearly a third, while the value of margin movements processed surged by 75%.
This shift in mindset among alternative asset managers, corporates, and banks is comparable to the adoption of cloud technology over the past decade. As businesses have moved from on-premises solutions to cloud-based services, the middle office is experiencing a similar transformation.
As we look to the future, a new model is taking hold across alternatives and beyond. Most operational work will be outsourced, allowing in-house teams to focus on oversight and true value-add tasks. This shift will enable firms to achieve growth, efficiency, and scalability in an increasingly competitive and complex financial environment.
The alternative investment industry is embracing outsourcing as a means to achieve these goals. As technology advances and service providers continue to innovate, we can expect this trend to accelerate, reshaping the landscape of alternative investments and capital markets. Firms that successfully navigate this transition will be well-positioned to thrive in the evolving financial ecosystem.
This article was originally published in AIMA.