Perspectives 2019 2020 Public Sector

82 Asset Owners’ Appetite to Insource Firms can use this opportunity to start with a clean canvas and develop a blueprint of their current and future operational model. Technology’s evolution over time has created modular and interoperable systems. Firms that insource investment management can benefit by outsourcing non-core middle and back- office functions, such as safekeeping, fund accounting and administration of their assets. This can result in cost savings, while leveraging the expertise of their service providers. Other revenue-generating opportunities that asset owners can outsource in a low-returns macro environment include securities lending and collateral management. 4) Set a holistic data strategy An orchestrated firm-wide effort around data governance and management will help firms internally manage their assets effectively. As they invest in more complex strategies, firms require a sophisticated data strategy that empowers them to make the most of their investments. Firms are also becoming more flexible with their investment timelines in search of yield by frequently rebalancing their portfolio. Internal investment teams can use normalized, aggregated and real-time data to derive insights to inform allocations. Firms can begin by harmonizing data sources and consolidating them into a centralized repository, ensuring that teams use the same reporting method and data source. They should ensure that data systems are built with capabilities to feed in all trading positions and related internal and external data sets with a user-friendly interface that quickly provides insights. Asset owners can alleviate the burden of building their data solutions from scratch by partnering with service providers and vendors that offer data systems, expertise and capabilities suited to their needs. 5) Monitor and manage operational risks When an asset owner starts managing investments in-house, the operational risk transfers from external parties to itself as oversight of the end-to-end investment process is required. Due to constraints on capacity, smaller firms tend to rely on investment advisors and external managers for oversight. As firms scale up, they develop expertise and are able to take more oversight control, reducing third-party dependency.