Strategic outsourcing in securities operations : Alleviating cost burdens through specialisation and technological synergy

Abstract

This paper builds toward a central argument: in a competitive, technology-enabled landscape, the decisive advantage comes from focusing on ‘idea generation’, the intellectual property of investment research and strategy, while treating ‘idea Implementation’ as a modular, often outsourced utility. By the conclusion, readers will see how this model, adapted to each manager’s unique circumstances, can unlock scalability, resilience and sharper strategic focus. The securities operations landscape confronts unprecedented challenges: margin compression intensifies as passive investing approaches parity with active management, having grown from 45 per cent to 47 per cent of US fund assets in 2023 alone,1 while globally passive funds have surpassed active funds in total assets for the first time.2 Simultaneously, a widening skills gap in emerging technologies compounds the difficulty of maintaining cost-effective in-house operations. This paper presents a strategic framework for chief operating officers (COOs) to transform operations through targeted outsourcing augmented by generative artificial intelligence (GenAI), process mining and other complementary technologies. The paper demonstrates how specialised providers deliver not just cost efficiencies but also strategic capabilities, from AI-driven compliance to tokenised custody solutions, allowing companies to refocus resources on alpha generation, client relationships and client experiences. Readers will gain practical tools to evaluate their current operations-related models against industry benchmarks, identify high-impact outsourcing opportunities within their value chain, and implement a risk-mitigated transition plan. The paper provides cost structures showing potential savings, a decision matrix for function-by-function assessment and specific governance frameworks to maintain control while enhancing capabilities. COOs will leave with actionable strategies to transform fixed costs into variable expenses while accessing technological innovations that would be prohibitively expensive to develop in-house. The central thesis challenges conventional wisdom: in an era of compressed margins and scarce talent, should companies still build non-differentiating capabilities in-house when specialists can deliver superior outcomes? This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.