Tag Archives: Back Office Outsourcing

Introduction

Businesses must strike a balance between costs, efficiency, and quality to remain competitive in today’s globalized economy. Outsourcing operations is one method businesses have been able to deal with these issues. Hiring an outside organization to carry out business operations that were previously done internally is known as outsourcing. Operations outsourcing is a subset of outsourcing that entails giving third-party service providers control over non-core corporate operations.
Operations outsourcing has become a popular practice for many businesses, especially for those in the manufacturing, logistics, and service industries. Outsourcing operations can help businesses reduce costs, improve quality, and increase efficiency by taking advantage of the specialized expertise and economies of scale of outsourcing providers. Companies can delegate activities such as customer support, accounting, data entry, procurement, and other non-core tasks to third-party providers who are experts in these areas, while they focus on their core competencies.
The ability to access new markets and clients without making significant infrastructure investments or recruiting more people is another benefit of outsourcing operations. By providing local skills and information in various regions and nations, outsourcing providers can assist firms in expanding their operations abroad.
Outsourcing business activities, however, may also come with certain disadvantages. The loss of control over corporate procedures and data is one of the main issues. To safeguard the protection of their intellectual property, sensitive data, and customer information, businesses must carefully choose outsourcing providers and create clear contractual agreements.
Moreover, outsourcing operations can also lead to job losses in the company, which can hurt employee morale and company culture. Therefore, companies need to communicate the reasons and benefits of outsourcing to their employees and involve them in the decision-making process to minimize the negative effects.

Types of Operation Outsourcing

The practice of using a third-party business to carry out specific business responsibilities on behalf of an organization is known as operations outsourcing. Depending on the unique demands and requirements of the organization, there are many different types and categories of operation outsourcing. Some of the most typical types and categories of operation outsourcing are listed below:

Back Office Outsourcing:

This type of outsourcing refers to the outsourcing of internal business processes such as accounting, human resources, payroll, and administrative tasks. It is a cost-effective way for organizations to focus on their core competencies while delegating these back-office tasks to specialized service providers.

IT Outsourcing:

IT outsourcing involves hiring a third-party service provider to manage an organization’s IT functions, including network management, software development, and infrastructure support. IT outsourcing can help organizations reduce costs, improve efficiency, and gain access to specialized expertise.

Manufacturing Outsourcing:

This type of outsourcing involves outsourcing the manufacturing process to a third-party company. The outsourcing company is responsible for all aspects of the manufacturing process, including raw material procurement, production, and quality control.

Call Centre outsourcing:

In this kind of outsourcing, call centers and other forms of customer care are outsourced to a different service provider. This can aid businesses in cost-cutting, efficiency improvement, and better customer service.

Logistics Outsourcing:

Logistics outsourcing involves outsourcing the transportation and distribution of goods to a third-party provider. This can include shipping, warehousing, and inventory management.

Knowledge Process Outsourcing (KPO):

KPO involves outsourcing high-level knowledge-based tasks, such as research and development, data analysis, and business intelligence. KPO providers offer specialized expertise and can help organizations improve their decision-making capabilities.

Legal Process Outsourcing (LPO):

LPO involves outsourcing legal services such as document review, contract management, and legal research. It is a cost-effective way for organizations to access specialized legal expertise without incurring the high costs associated with hiring in-house legal staff.

Challenges in Operations Outsourcing

While operation outsourcing can be very advantageous for businesses, several issues must be resolved to have a fruitful outsourcing collaboration. Some of the most typical difficulties in outsourcing operations are listed below:

Challenges in Operations Outsourcing

Challenges in Operations Outsourcing

Quality Control:

Maintaining quality control can be difficult when operations are outsourced to a third-party provider. Expectations may not match since the outsourced provider may follow different quality standards and procedures than the organization.

Communication:

Communication is essential in outsourcing operations since it’s critical to make sure the provider is aware of the organization’s needs and expectations. Ineffective communication can cause delays, mistakes, and misunderstandings, all of which can be detrimental to outsourcing collaboration.

Data Security:

Because sensitive information might be exchanged with the outsourcing provider, data security is a top issue when outsourcing processes. To protect the organization’s data, it is crucial to confirm that the outsourcing provider has put in place the necessary security measures.

Cultural Differences:

Cultural differences can pose a challenge in operation outsourcing, as the outsourcing provider may have a different cultural background and work style than the organization. It is important to establish clear communication and a mutual understanding of cultural differences to ensure a successful outsourcing partnership.

Lack of Control:

When outsourcing operations, the organization may feel like they have less control over the process and the quality of the work being done. This can lead to a lack of trust and a strained outsourcing partnership.

Cost Overruns:

Outsourcing operations may involve additional costs, such as setup costs and contract management fees. It is important to carefully evaluate the costs associated with outsourcing to ensure that the outsourcing partnership is cost-effective.

Legal and Regulatory Compliance:

Performing outsourcing activities may entail adhering to several legal and regulatory obligations, such as labor and data protection legislation. To prevent monetary and legal consequences, it is crucial to make sure the outsourcing provider complies with these criteria.

Magistral’s Operations Outsourcing Services

We provide organizations with a comprehensive range of services as an operation outsourcing provider to help them increase productivity, cut expenses, and concentrate on their core capabilities. Some of the services we offer to our clients are listed below:

Magistral's Services on Operations Outsourcing

Magistral’s Services on Operations Outsourcing

Back Office Support:

Data entry, document processing, record management, and other administrative chores are all part of the back-office support services we provide. Our team of skilled experts makes sure that all back-office tasks are completed accurately and effectively, freeing our clients to concentrate on their main company operations.

Customer assistance:

We offer customer support services such as live chat, phone support, email support, and social media management. To ensure that the customers of our clients are satisfied, and the reputation of their brands is upheld, our customer service team is trained to handle queries, complaints, and other customer concerns.

Accounting and Finance:

We offer accounting and finance services, including bookkeeping, payroll processing, accounts payable and receivable, tax preparation, and financial reporting. Our experienced team of accounting and finance professionals ensures that our client’s financial operations are compliant and up to date, providing them with accurate financial data for decision-making.

Human Resources:

We provide human resources services, including recruitment, onboarding, training, performance management, and benefits administration. Our team of HR professionals ensures that our clients have the right talent in the right roles, are compliant with labor laws and regulations, and are providing their employees with the support they need.

Information Technology:

Network administration, software development, cybersecurity, and technical assistance are among the IT services we provide. Our team of IT experts makes sure that the technology infrastructure of our clients is current and safe, giving them the resources they need to function effectively and efficiently.

Supply Chain Management:

We offer inventory management, logistics, and procurement as part of our supply chain management services. Our staff of supply chain specialists makes certain that our clients have the resources necessary to satisfy customer demand, control costs, and minimise risk.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

What is an Outsourced CFO?

In today’s outsourced and globally connected business world there are many functions of businesses that are being outsourced like accounting, payroll, operations, IT, and marketing among others. Unfortunately, not many companies are aware that finance as a function can be outsourced too.

Herein, comes the importance of an Outsourced CFO. An outsourced CFO is a financial expert who provides financial services on a part-time or full-time basis to companies. The role of an outsourced CFO is to provide strategic insights as well as provide expertise in areas such as formulating strategy or providing core financial services help. This includes areas such as support in finding cash flows, raising capital, implementing more efficient systems, or formulating growth strategies. Usually, outsourced CFOs have considerable experience performing high-level financial roles as they may have worked in corporate finance roles in other reputed organizations.

Why one should hire an Outsourced CFO?

Outsourced CFOs can lead up to 40-50% savings in costs. About 80% of financial services executives outsource or offshore some of their services.   Highlighted below are some of the top reasons for outsourcing this critical finance function.

Benefits of Outsourced CFO

Benefits of Outsourced CFO

-Currently undergoing growth – This is usually the case for companies that are witnessing a lot of growth. A common example could be growth related to the launch of new products or say when a company is entering a new market.

-Resolving key business challenges – This comes into the picture when a company for instance is trying to resolve challenges such as cash flow, cost cutting, or looking to improve operational efficiencies.

-Raising debt or equity capital – Outsourced CFO can be of great help especially when companies are looking to raise capital. They do so by assisting in strategy formulation for it, due diligence, and in raising capital in terms of debt or equity mix.

-Maximizing margins – By analyzing current spending and costs, the outsourced CFO can suggest improvements that can be made in spending.

-Need for an interim CFO – This normally is the case when there is a need felt to place an interim CFO, especially in cases where an organization is transitioning from one CFO to another or a need is felt to outsource an organization’s finance function simply because someone else can do it better.

-Taking advantage of consulting services- An organization can look to hire an outsourced CFO simply because they can do the task better.

How does an Outsourced CFO provide value?

We have already seen why companies should look forward to outsourcing their services to a third-party service provider. In this section, we will look at some of the key benefits that are provided by an outsourced CFO. It must also be mentioned here that there are cost implications associated with hiring a CFO. Smaller companies may not have the budget to hire a CFO. This means they can incur a lot of savings by outsourcing this function which can be at a fraction of the costs of the salaries that are paid to a CFO. Not to mention the availability of talent and global access to them without incurring many operational headaches. These talents are simply at a third company party’s disposal the benefit of which can be reaped by companies.

There are some of the other benefits which an outsourced CFO can provide. Some of them are:

-They help in financial planning and analysis by providing assistance in the form of budgeting, and forecasting future revenue or cash flows for a company.

-They can help an organization in assessing its strengths and weaknesses vis a vis competition.

-Help in designing complex business models which necessitate the use of techniques such as NPV and IRR.

-Help in analyzing spending and cost incurred by a company and thereby suggest improvements in cost cutdowns.

-Assistance with financial statement preparation.

-Assistance with yearly financial reporting.

Top 10 Outsourced CFO services

A question that arises naturally is what kind of services are provided by Outsourced CFO.

Listed below are the top 10 services –

Top Outsourced CFO Services

Top Outsourced CFO Services

-Financial Strategy – One of the key benefits of outsourcing CFO services is in designing a company’s financial strategy. These are designed both short term as well as long term.

-Forecasting – Forecasting for the future is one of the key functions of any finance division of an organization. Preparation of the details helps in planning an operational roadmap for an organization. It requires a strategic understanding of requirements, assessing current and future capabilities of a company, competition analysis, and mastery in building financial models

-Financial systems strategy and design – With growth, it becomes imperative for any organization to implement software and improve process that can match an organization’s growth strategy. An outsourced CFO can help address this pain point by redesigning systems and suggesting improvements in current processes.

-Budgeting – Managing budgets is one of the key functions of the finance function. Normally budgeting is done for a 5–10-year time horizon. Budgeting helps to plan spending and future revenues in great detail.

-Financial statement preparation – An outsourced CFO can help in preparing financial statements as well as interpreting their consequences. This is the most useful information for any organization.

-Raising capital – Here a person is introduced to a host of investors, people or organizations who can help a company in raising its capital.

-Capital structure – This is done by suggesting which would be a better route – debt or equity or a mix of both.

-Interim CFO services – This service is most useful to avail of in case there is a transition from one CFO to the next or in cases where low-cost outsourcing seems to be a better option.

-Cost cutting – Costs are an important factor in decision-making. Outsourcing its services to a third party can help in this.

-Complex decision making – This is especially true with companies where complex decision making is involved and which requires the knowledge and expertise of a person. Examples could be making models for Mergers and Acquisitions, management buyouts, etc.

How can Magistral help in providing CFO services?

Magistral offers Portfolio Management services for varied kinds of the portfolio of companies such as Private Equity or a Venture Capital fund. For all the investors who sit on multiple boards, it is a headache, to implement something in a company that worked in another portfolio company. The problem is more acute when all companies are in similar industries and are facing quite similar headwinds. Limited supervision time available to board members, unavailability of resources across companies, and implementation knowledge held in a single portfolio company, all play spoilsport. It’s like re-inventing the wheel every time for the same problem.

We help portfolio managers in centralizing their Marketing (mostly digital), Strategy (Fund-raising and Exits), and Finance at fraction of the cost required to have dedicated functions in each portfolio company, big or small. The off-shored extended team also ensures no knowledge is lost for similar projects across companies and multiple projects in multiple companies can run at the same time, prioritized as per the schedule of board meetings. Learning, of course, is cross-pollinated across projects.

Our service offerings for portfolio and other companies are:

-Strategy: Identifying add-on acquisitions and potential buyers, fundraising, exit strategy, growth strategy, and content marketing

-Analytics: Financial reporting and analysis, preparing dashboards, data visualization, text cleaning and mining, predictive modeling, KPI tracking, and web scraping

-Sales: List generation, CRM cleansing and management, competitive intelligence, and social media management.

-Financial planning: Budget preparation, forecasting, and competitive quarterly earnings updating.

-Procurement: Spend analysis, vendor identification and management, spend base cost reduction, category strategy, RFP support and procurement strategy.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is in Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

Introduction

Financial process outsourcing has been on the horizon of businesses for over a decade now. But there are a few trends that are making this process all the more strategic. It is not only about cutting costs, but having the right partner who could improve the processes, change culture, bring in the new talent and technology and make finance more predictive and proactive.

When it comes to Financial Process Outsourcing, the following trends are changing the landscape of the industry

Smaller and niche clients

Bigger players with a headcount of hundreds of thousands started taking advantage of outsourcing around a decade back. They are increasing it in terms of scale and complexity, however, the major volume is now going to come from smaller players as small as 1 or 2 men companies. Niche processes that are difficult to deliver on a turnkey basis also show promise.

Technology

Technology impacts all industries all the time. Financial process outsourcing is no exception. It has now moved from process outsourcing to process reengineering to automate steps and bring down the costs further and improve the operational efficiencies

Outcome-based offerings

Outcome-based offerings are still to take off but are on the horizon. It makes the vendor, your business partner where they are accountable for business results and not only delivering on the processes. Metrics related to a reduction in sales outstanding, operations costs, cycle time reductions, liquidity improvements, forecast accuracy are a few related to advisable business outcomes

Strategic importance

Outsourcing started as a low-cost low-value add jobs outsourcing. It still is to some extent. However meatier and strategic jobs are now being outsourced. Processes like budgeting, fundraising, investor communications, etc. are also being outsourced apart from the run of the mill accounting jobs

Advantages of Financial Process Outsourcing

There are multiple reasons why outsourcing the financial processes is the best way of doing it. The reasons not only involve cost savings but a host of others that raise the operational standards of the client, whatever business they are in.

Magistral's Financial Process Outsourcing Advantages

Financial Process Outsourcing Advantages that Magistral Consulting Offers

These advantages are:

Cost

Of course, cost considerations here are tangible and very obvious. One dollar saved is a dollar earned. That is a saving that starts showing in the P&L as soon as you decide to outsource. Depending on your location and the process that you wish to outsource a savings of 50-80% is very normal and can be expected.

Flexibility

Apart from the absolute cost savings, there is a further scope of savings due to fractional resources. Fractional resources mean that you are not hiring anyone permanently but are tapping into the skill and experience of the resources only as and when required.

CFO outsourcing

CFO outsourcing or substantial outsourcing of strategic tasks is an emerging trend. This is all the more important for start-ups or funds that are small and can’t afford a full-time CFO.

Focus on core tasks

Outsourcing frees up the management and workforce bandwidth to focus on more strategic aspects of business and operations

Technology

As the vendor is experienced and has worked on outsourcing similar processes from other clients as well, it’s in a better position to recommend and implement a technology that might reduce the effort or improve the turnaround time for a process. It is done by automating several tasks of the process using Artificial Intelligence and machine learning algorithms.

Operational efficiency improvements

Outsourcing to an expert improves the operational efficiency of a process by multiple notches. Something like an increase in efficiency due to touchless processing, reductions in operations cost, and reduction in Day Sales Outstanding (DSOs) are very typical operational outcomes of outsourcing

Improved plan compliance and making finance more predictive

With tools like dynamic real-time scenario planning, dashboards, visualization tools, data science and analytics, and on-demand reporting, it’s possible to make the finance function more predictive

Financial Process Outsourcing: What could be outsourced?

Financial processes that are low value add and not strategic could of course be outsourced. Now added onto transactional outsourcing is the strategic outsourcing elements that require specialist interventions. The activities that could be successfully outsourced are:

Bookkeeping and back-office support

The activities that are time tested to produce cost benefits and improve the quality of operations are account reconciliations, deferred revenues, customer billing and payments, expense processing, general ledger, financial and tax reporting, currency consolidation, payroll services, and vendor invoicing.

Controller services

The services like audit reports, auditor facilitation, compliances, MIS, dashboards, etc form the backbone of outsourcing here

Financial Planning and Analysis (FP&A)

This is the bulk of the planning and analysis aspects of the Finance function. This includes acquisition integration support, board reporting, financial data analysis, ratio analysis, comparative analysis with competition, financial research, along with planning, budgeting, and forecasting

Fundraising

This aspect requires a very specialist intervention. Here the offerings include pitch deck content and design support, investor reach-out, modeling and valuation, and investment bank’s selection

Mortgage process outsourcing

This is a specialist process of a lender whose critical elements could be successfully outsourced. These elements are marketing, loan origination data entry and analysis, underwriting documentation, background investigation, property assessment, accounting, financial checking, documentation checking, mortgage underwriting, and every other micro sub-steps required for the evaluation, underwriting, and approval of loans.

Magistral’s tried and tested process for outsourcing

Magistral has helped scores of clients in the financial industry and elsewhere in outsourcing operations. Magistral follows a customized and low-risk process for a smooth transition. The process puts business continuity and risk minimization at the center. Here are the major steps in offshoring that is proprietary and unique to Magistral:

Magistral's Financial Process Outsourcing Steps

The approach followed by Magistral Consulting for outsourcing financial processes

Project Kick-Off

There is a call with all the client stakeholders to understand their challenges and expectations from offshoring a process. Once the business imperative of offshoring is understood, a proposal for services is prepared. The proposal carries in detail the commercials, methodologies, KRAs and KPIs, project plans, and other details required for client management to take a call. Once the proposal is signed off the action begins.

SOP preparation

Before taking any project for delivery Magistral invests a great deal of time and expertise in preparing Standard Operating Procedure documents. For preparing SOP a trained analyst gets in touch with the client SPOC (Single Point of Contact) and by his skills in business analysis brings all the knowledge of people onto a process document. We call this “bringing what is between the ears onto the paper”. Every fine detail is captured. A Magistral SOP document would carry lots of process diagrams, tips for analysts, swim-lanes, along with audio and video recording of meetings and training. The whole of this process is done without any cost to the client. Clients first-hand see the expertise that Magistral brings to the table without any investment on their part. Once the SOP document is ready, the signoff about its accuracy is taken from the relevant personnel in management. Till this point client does not spend even a single penny and we are fine about it.

Business Reengineering

Once the detailed SOP is ready, business reengineering opportunities make themselves evident. There are processes where either cost could be reduced or turnaround time could be improved by Artificial Intelligence, Automation, and Machine Learning. The same is shared and validated with the client.

Pilot Projects

Our proposals are always signed based on the projects or milestones that we deliver. It is never based on the number of people (FTEs) that we employ to deliver services. Normally vendors will charge for FTEs and then they will sit and undergo process training at the client’s expense. With Magistral, you only pay when we deliver the project or processes that meet your quality standards. We start with low volumes. Trainers get trained in the process. Coordination with the client is very close and done almost daily to fill any gaps in delivery and expectations. For bigger projects, an onsite analyst sits with the client for weeks and is responsible for business analysis and knowledge transfer.

SLA finalization

Many times, there are no Service Level Agreements decided for internal teams. We make sure we are accountable for everything we deliver and decide the SLAs of every process. These SLAs can be in terms of improvement in quality, turnaround time, analyst’s availability, prompt acknowledgment of requests, etc. With Magistral, if you have internal SLAs, we promise to beat that further with at least 20% improvements.

Process Stabilization

With SLA compliances meeting standards, we increase the scope and volume of work offshored.

 

The phased approach ensures the client is never too invested to back off. The process is also designed to give enough confidence to the clients to trust the expertise of Magistral.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Activities under Back and Middle Offices and their Potential for Outsourcing

Back Office Outsourcing has been around for over a decade and picked up the pace since the financial meltdown of 2008. Middle Office Outsourcing is something that is picking up now and is expected to gather pace after the Corona pandemic. So, what is Back and Middle Office outsourcing, and does it make sense for financial services firms like Investment Banks, Private Equity, Venture Capital, and Hedge Fund firms to outsource these activities?

 

What is a Back Office?

There are not many definitions that clearly demarcate back-office activities from middle-office. A front office at an Investment Bank or a Private Equity firm is the one that interacts with the clients. It comprises people who are in touch with the market like traders, deal makers, Investor relations, and rainmakers. On similar lines, back-office functions are ones that never interact with clients, like fund administration, accounting, record keeping, etc. Back Office has now long been designated as the right candidate for outsourcing to reduce operational costs.

What is Middle Office?

Middle Office are the functions that coordinate between the front and back office. Similar functions in similar financial institutions can often be categorized as Middle Office, back office, or even Front Office. So, there are lots of blurry lines between Middle and Back Office definitions. Also, an activity that will form a Back Office activity at an investment bank can be categorized as a Middle Office activity at a Hedge Fund. Technology is now getting all the more important than it was ever before. Biggest of Investment Banks now have more than 30% of their employees working in technology-related functions. Technology and Risk Management functions are commonly being categorized as Middle Office functions across financial institutions like Investment Banks, Hedge Funds, Private Equity, and Venture Capital firms.

Potential of Back Office Outsourcing

Back Office needs to be outsourced is a forgone conclusion. It was probably a matter of discussion a decade back. Almost all big Investment Banks have outsourced their back office. Private Equity, Venture Capital and Hedge Funds are playing catch-up when it comes to back-office outsourcing. The reason for them lagging behind is that their teams are comparatively smaller to start with, which leads to limited cost advantages of outsourcing for them. Hedge funds have rather taken the technology way to reduce costs with developments like AI, ML, and Automation. Traders on most trading floors have been replaced by robots now. The conclusion here is that if your firm has a well-demarcated back office, it needs to be outsourced, big, or small. As the industry has started to rely on back-office outsourcing defacto, it will be difficult to compete in the market for those who decide to keep it in-house.

Potential of Middle Office Outsourcing

Middle Office Outsourcing is a hot topic now. It is gaining ground with investment banks who were pioneers even in the back office outsourcing space. Increased capabilities of vendors, further pressure to reduce costs and improve bottom-lines, and competitive pressures are the major trends that are aiding the phenomenon. It’s not right to suggest that all functions of the Middle Office could be outsourced right away. It depends on the processes, culture, and cost structure of the financial institution in question.  In conclusion, Middle Office Outsourcing is something that is still taking shape. Though a lot of it could be outsourced, the moot subject is what and how much.

Outsourcing for smaller firms

If an Investment Bank, Private Equity firm, Hedge Fund or a venture capital firm is around 20 people or less, they are continuously caught up in the dilemma to outsource or not. A big firm with hundreds and hundreds of traders would save millions of dollars by outsourcing, the same could not be said about the smaller firms. Smaller firms operate in a niche and fear losing the competitive edge if they go for outsourcing. The low-quality perception of outsourcing does not help give them confidence either. It was so far so good. Some smaller players did survive the last financial meltdown on the back of their superlative services and the network of loyal clients. It’s debatable if they will survive the current pandemic too. In the changed scenario, it is almost imperative for a smaller firm to outsource both the back office and middle office if they need a worthwhile shot at survival. When we talk about the back office and middle office of a smaller financial services firm, it’s pretty much all of their analyst capacities. Thousands of one-man shops are thriving on the formula of outsourcing when the deal is there and conserving the cash when it is not.

Middle Office and Back Office Outsourcing Trends

Multiple trends are evident in the market. Some of the prominent ones are:

Back Offices at bigger financial institutions have been outsourced. A mode could be different in a way having owned captives in a low-cost country or giving a big contract to a leading vendor, but the fact remains, that the physical location of the back office now is a low-cost country.

Middle Office Outsourcing is in a transitional phase: A middle office is being planned to be outsourced. Some players have outsourced the junior positions with mid-level and senior positions in-house. Some are toying with outsourcing the simpler functions over the complex ones

Outsourcing is catching up with Private Equity, Venture Capital and Hedge Funds: Investment Banks definitely took a lead in outsourcing but now even typically smaller financial institutions like Private Equity, Venture Capital, Family Office, Hedge Funds, Real Estate, and Asset Management firms have also started to experiment with varying degrees of exposure to outsourcing

It’s not only about costs: Outsourcing has come a long way from being a lever of only saving costs. Vendors have developed advanced skills and now are in a better position to enhance the skill of the in-house team. It is possible because the vendor is working across geographies, financial institutions, and investment philosophies. A vendor can now bring a fresh eyes’ perspective to the operations and help the financial institution up its game

Pandemic will relay the rules: If outsourcing was just an option before the pandemic, it may not be so afterward. Financial institutions are expected to face cost-related headwinds that will force them to outsource to survive

Increasingly complicated assignments being outsourced: Assignments like Financial Modeling, Investment Research, Outsourced CFO, Fund Administration Process, Hedge Fund Analytics, Pitch Decks, Portfolio Management, etc. are increasingly being outsourced by Investment Banks, Private Equity, Venture Capital and Hedge Fund firms.

Overall back office and middle office outsourcing are at different stages of maturity across the financial institutions. While large investment banks are pared to the bone when it comes to taking advantage of outsourcing, the mid-sized and smaller investment banks have only started recently experimenting with the trend. While Investment Banks, in general, are more mature and warm towards outsourcing, firms like Private Equity, Venture Capital, Hedge Funds, Family Offices, Real Estate, and Asset Management are now opening more and more to the idea. What large institutions identified as a tool to maintain their profit margins, smaller institutions are finding that tool to be the key to survival and profitable growth.

Service Offerings of Magistral Consulting

Here are the service offerings that Magistral provides:

-Daily/Weekly/Monthly Review of NAVs

-Reconciling Cash Trades and Portfolios

-Monitor Trades and Corporate Actions

-Maintain Investment Book of Records

-Independently price the portfolio

-Performing Investor Allocations

-Reporting Profit and Loss

-Client reporting for funds

-Reviewing and preparing all financial statements

-Managing relationships with service providers

-Providing tools to monitor systems and processes

Magistral Consulting (www.magistralconsulting.com) is a premier outsourcing firm that has helped multiple firms like Investment Banks, Private Equity, Venture Capital, Hedge Funds, Asset Managers, Real Estate, and Family Offices in outsourcing their back and middle office. To schedule a free discussion without any commitment, drop a line at   https://magistralconsulting.com/contact/

 

The Author Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries on the article of business inquiries in general