More global assets owners are taking the investment process in-house, according to research by Northern Trust asset servicing.
The Chicago-based asset servicer’s research shows that 40% of global asset owners have increased the number of in-house investment staff in the three years to mid-2018. Nearly a fifth (19%) have upped the proportion of assets they manage internally.
Dan Houlihan, head of Northern Trust asset servicing, said in a phone interview that institutional investors looking to manage their assets internally is a trend that is growing globally because of four factors: "to reduce costs, to gain control and transparency, to gain efficiencies and drive overall investment performance."
"We're seeing trend continue and it's accelerating," Mr. Houlihan said. "I think it's about rethinking the model."
Reducing costs is a major factor. Citing data from CEM Benchmarking, Northern Trust's research shows that the average cost of internal management is 8 basis points, vs. 46 basis points for external management.
Asset owners that want to manage assets internally in the future need to consider implementing governance structures, recruiting the right talent, managing technology needs and adapting to new operational models, according to the report.
"There are a lot of costs associated with having to do this," Mr. Houlihan said.
Melanie Pickett, head of front office solutions at Northern Trust, said in the same phone interview that in many cases managing assets in-house can be a challenge for the boards of asset owners because now they're responsible for the operational risk.
"Boards need to ask themselves more introspective questions as to how up to date they are on compliance issues," Ms. Pickett said.
Northern Trust's report notes that regardless of what asset owners plan to do, whether it's managing in-house all or part of their assets, they need to think about what value is being gained. Since each investor is unique, asset owners need to figure out "at what point it makes sense to bring assets in-house," according to the report.
Investors also need to work out how to handle "the operational, technological, risk, governance and compliance complexities around that decision-making."
Asset owners that have decided to manage their assets internally need to be aware of the regulatory landscape, their long-term investment goals and business strategy, and the operational costs inherent to the process, according to Northern Trust asset servicing.