The financial services sector has trended steadily towards outsourced IT and managed services in the almost eight years since the financial crisis. Aggressive cost cutting and restructuring is now seen as crucial means by which to drive profits, and managed IT providers can play a critical role.
Increasingly, firms that traditionally managed their infrastructure internally have looked to migrate to outsourced platforms. Our experience, particularly in the last 15 months or so, is that the industry-wide drive to find greater cost efficiencies has significantly gathered pace. The Technology Services Industry Association’s (TSIA) annual survey shows spending for managed services continues to rise at a double-digit rate, with the global spending forecast expected to reach over $193 billion by 2019 according to MarketsandMarkets.
Better cost efficiencies, the offer of operational agility and improved reliability, in terms of performance, has seen a number of global hedge funds choose Options as their managed infrastructure provider in the last three months alone.
The post-financial crisis world saw financial sector participants recognise the need to be lean and agile whilst at the same time conscious about capital expenditure. They also now look to managed IT providers to solve complex problems and innovate – two very costly areas to tackle internally. As such, we find firms are looking to us for three things: profitability, problem solving and innovation.
Profitability – Infrastructure Cost Reduction
With increased market fragmentation, financial organisations are faced with a far more complex and diverse trading ecosystem to navigate and access. The need to demonstrate and meet best execution regulations whilst providing performance and coverage to their underlying users has placed huge demands on organisations’ IT and network infrastructures. The proliferation of venues, connectivity options and continual reductions in latencies has resulted in an environment where it has become too costly for clients to manage their own connections.
Take electronic trading infrastructure for example. Initially viewed as a competitive differentiator for market participants, which heralded significant investment to enhance competitive edge, it is now seen as a competitive necessity. As a result, firms are seeking alternative deployment models to maintain overall trading capabilities.
Add to this a regulatory environment that has significantly reshaped budget prioritisation and the ability of banks and buy-side firms to focus spend around technology deployment has been greatly impacted.
Problem Solving – Security & Compliance
The threat posed by security breaches has never been more real and businesses are required to go on the offence. Of course the ability to do so requires focusing huge resources and investment in infrastructure required to prevent such attacks.
In the last 18 months, Options has invested heavily in a number of security and compliance products to enhance our offering. These include web-filtering appliances, Active Directory auditing, Splunk SIEM, Windows file system auditing and BYOD management. We have also recently partnered with Observable Networks for network security analytics and Fortinet for mail gateways and firewalls. With capital allocations of hedge funds focused on core strategies, outsourcing security to a managed provider is a huge value-add.
Innovation – The Need for Leading-Edge Technology
Finally, the Darwinian forces that drive financial market evolution continue to manifest themselves in the background leaving all participants with one eye firmly on the future, recognizing that they must lead and innovate to survive.
It is not enough to be cost efficient or compliant in the medium-term, leading-edge platforms are required and the market is increasingly looking to key vendors to deliver this. We expect this final element to come sharply into focus in the coming months and years as they begin to grasp the requirements on the cost reduction and cybersecurity.