IT Outsourcing: Better Out Than In?

By Nik Pratt

Funds Europe, the business strategy magazine for Europe's asset management professionals, covering institutional and retail markets, traditional and alternative investments, turned to Alexei Miller of DataArt and Jonathan Lindsell of Red Skye Partners, to discuss the benefits and risks for investment managers who are considering outsourcing IT operations. Lindsell, who’s an adviser to DataArt, offers excellent points to keep in mind when weighing outsourcing options while Miller is quoted discussing the major factors that have contributed to the rise of IT outsourcing, including pressure from investors for more transparency and data as well as the improved capability of vendors.

“There has been a perfect storm of positive forces that have contributed to the rise in IT outsourcing, says Alexei Miller, executive vice president at IT outsourcing company DataArt. He cites three factors. The first is the pressure from investors for more transparency and data. The second is the improved capability of vendors. “They had been looking at this sector for a long time but not quite understood them. The third is trust – which has improved dramatically, Miller says. “There is a trust that you could put data outside the firewall that was not always there. Now it is quite different. The risk is better understood. I would also expect more managers to go public about their outsourcing deals. The arrogance of institutions believing that they could do a better job in-house is fading and that is good for the industry.”

Can outsourcing be the preferred practice or dominant business model for investment managers? “I think the most we can hope for is that it will become normal,” says Miller. “Outsourcing is often seen as providing something that is lacking in the client. Some firms are set up to manage things in-house and I don’t think IT outsourcing will replace that approach. IT outsourcing won’t become a better approach, just a normal approach.”

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