State Street Report Promotes Benefits of Outsourced Trading

A new survey published by State Street finds high levels of satisfaction among asset managers and owners regarding outsourced trading services, and a growing demand to embed the services in other asset classes, including foreign exchange.

The report, The Outsourced Trading Advantage: Evidence from Early Adopters, is based upon a survey of 300 asset managers or owners, 241 of whom currently use outsourced trading services – of which State Street is one provider – with the balance “considering” the option. Non-users of the service were excluded from the survey, which will, naturally, skew the results.

That said, current users reported benefits such as increased efficiencies (cited by 55%), reduced costs (33%) and, importantly, improved investment performance to various degrees. On the latter, the vast majority, 76%, saw performance improve “slightly”, while 7% saw a “significant” improvement and 16% saw no impact on performance.

Of those that are yet to embrace outsourced trading, 61% cited concerns about cost effectiveness and 56% loss of control over their trading activities – the same number also expressed a lack of understanding about the benefits. While 47% of potential users saw keeping the trading function in-house as more cost-effective, State Street says just 27% of current users say costs are a concern.

This is part of a wider “gap in perception” cited by State Street, which points out that when asked about adoption in their own region, 49% of potential users believed it to be low, but only 5% of actual users held the same belief. “This mismatch in perceptions between adopters and potential adopters is present throughout the survey,” the report states. “May of the perceived barriers appear less material once outsourced trading is embedded into an organisation, suggesting fears may be unfounded.”

In addition to the concerns over cost-effectiveness and control, State Street says 49% of potential users cite a lack of trust in providers as a hurdle, while 44% have concerns over the technical complexity of integrating operations with a third-party, and 34% see regulatory barriers. “Once outsourced trading is implemented, we see many of these concerns dispelled,” State Street says in response in the report. “Suggesting that there may be misconceptions held by those who do not have direct experience with outsourcing.”

Looking ahead, the survey sees a “clear trajectory toward greater outsourcing across the board”, with the majority planning to add more asset classes in the next five years. FX features highly in the markets being looked at, currently just 18% outsource their FX trading, however, the survey finds that 73% of respondents are planning to outsource it – they highest percentage across asset classes, followed by domestic equities (68%), derivatives (67%), foreign equities (55%) and fixed income (48%).

The report goes on to say that adoption plans are particularly prevalent in EMEA, and that asset owners are much more likely to say they will increase outsourced trading, as they expect it will enable them to reduce headcount. “While his cohort will expand from a lower base of current adoption levels, it represents a possible strategic shift in how they allocate internal trading resources,” the report states.

“We have long believed that providing excellent service starts with knowing our market better than anyone else. With this ground-breaking research, we hope to shed light on the emerging move towards outsourced trading and provide clarity regarding the significant benefits it can offer,” says Dan Morgan, head of portfolio solutions, State Street. “We are pleased that our expertise has been enhanced with the addition of the CF Global Trading team, now helping us deliver stronger offerings and services to clients.”

Scott Chace, co-founder of CF Global Trading, which State Street acquired in February 2024, and head of trading for portfolio solutions at State Street, adds, “The findings from this survey highlight the potential and the real value outsourced trading is bringing to the industry, and we are well-equipped to help clients understand the offering and help with the integration.”