Stephanie Farrell is Head of Integrated Trading Solutions, Americas, Northern Trust.
What were the key theme(s) for your business in 2024?
In the intensifying battle for alpha, managers are looking at different avenues for growth, as reflected in our 2024 survey of 300 global asset managers. Asked which asset classes they plan to target for increased distribution, 71% of managers identified infrastructure, 54% identified digital assets and 49% said real estate. But expanding into new asset classes often comes with a price: increased complexity. Managers may lack the market knowledge and access needed to enter new asset classes and markets, and they may not have expertise in place to execute trades at the highest levels of effectiveness and efficiency. An outsourced provider can offer global trading capability from desks in multiple regions, staffed with expertise in local/regional markets and numerous exchanges across asset classes. A firm entering markets in the APAC region, for example, could use an outsourced provider to tap into expertise in local market trading and settlement to help with activities such as trade oversight and foreign exchange execution at a low variable cost.
Many managers are evolving their operating models to match a changing market, and they are increasingly widening their scope to outsource functions in the front office, including the trading desk. Nearly 30% of the respondents to our survey who have not yet outsourced identified trading as a function they would outsource. While managers have consistently focused on cost in recent years, they are now turning their attention to outsourcing for its potential to increase the quality of their execution.
What was the highlight of 2024?
2024 was a significant growth year for Integrated Trading Solutions, Northern Trust’s outsourced trading offering, across asset classes and client segments. We have seen broader adoption and managers of scale seeking outsourced partnerships as a way to augment or enhance in-house capabilities. Fixed Income was a sizeable area of growth and opportunity for us, where we saw a significant increase in volumes year over year. The growth came from larger mandates or new allocation across fixed income sectors, and managers utilizing the outsourced trading as a way to enter these markets. In equity markets, we saw greater diversification to global emerging markets and small cap trading.
What are your expectations for 2025?
We expect the adoption of outsourced trading models to continue moving from niche to norm as large-scale managers evolve their operating models. Our clients continue to diversify, moving into new asset classes or global markets where they may not have the in-house expertise or technology to support new areas of investments. A sharp focus on increased distribution and client experience will be another driver, with managers looking for a trusted partner to provide whole-office support — including front, middle and back-office solutions – backed by investments in the latest technology. Every asset manager is unique, and an outsourcing partner with long-established expertise and credibility can allow firms to go to market more quickly while deploying their in-house resources in the most efficient way.
