To reach EU fund investors, most roads lead through regulated operations in Luxembourg.
Decreasing margins and increasing concentration dynamics in asset management require managers to rethink their operating mode to remain competitive. As in other industries, the quest is to define what is genuinely adding value to investors, and how to focus processes and resources on these differentiating factors whilst decreasing costs.
It isn’t the rising barriers to entry that occupy the minds of most fund managers today as much as the barriers preventing the closure or outsourcing of operations that began in a bygone economic environment, with less regulatory and labor market challenges. The ongoing redefinition of operational scale and investments needed to keep infrastructure in sync add to this. Fortunately, these barriers have become lower with the establishment of dedicated outsourcing service providers.
Several in-house activities are likely to come under scrutiny because they consume time and resources without delivering differentiating value that clients are willing to pay for. This might especially be true for oversight functions and regulatory liability, that should anyway follow common standards defined by the regulator. However, the timing of decisions about outsourcing non-differentiating functions is not driven by management alone. Employees often anticipate the challenges and make their own career decisions long before any formal outsourcing strategy is announced.
The point is this: outsourcing starts long before you actually outsource. The corollary is that by delaying, you create precisely the kinds of risks you’re trying to fix.
The hidden beginning of every outsourcing journey
In a ManCo, outsourcing is usually described as a neat sequence of steps. In reality, the journey starts as soon as the idea enters the business. From that moment, investment slows, confidentiality becomes fragile, team conduct subtly shifts, engagement declines, and quality can begin to drift. This means the risks that outsourcing aims to mitigate often increase during the decision period itself, which may last 12–24 months.
The usual outsourcing steps (and where risk accumulates)
Typically, the road towards outsourcing follows a familiar path.
- Strategic trigger: A need emerges around cost, scale, capability, or regulatory expectations
- Strategic assessment: Scope and model decisions (partial, gradual, full, team lift out, entity lift out)
- Business case and go to market: Formal approach and request-for-proposal preparation
- Vendor evaluation: Capabilities, regulatory alignment, operating model design
- Contracting: Commercials, oversight, governance
- Transition readiness: Knowledge transfer, oversight, communication
- Embedding: New operating model settles
- Value delivery and enhancement: Improvements and alignment
Across these steps, risk builds as investment pauses, staff disengage, rumours grow, and the function can weaken before transition even starts. In effect, the long decision period creates hidden erosion: slowing investment, shifting priorities, talent loss, reduced ownership, and weakening control. By the time execution begins, the internal function may already be fragile.
Essential characteristics of an ideal outsourcing partner
To offset the erosion caused by delay, the ideal partner must provide more than just stability and capacity.
| Features of an ideal outsourcing partner | |
| Security of execution | Proven track record with insourcing, integrations, and transitions |
| Flexibility in timing | Ability to step in earlier if internal capability declines |
| Multi-model capability | Partial, gradual, full outsourcing, team lift out, entity lift out |
| Regulatory fit | Licenses, controls, auditability, delegation alignment |
| Governance strength | Clear escalation and reporting framework |
| Technical infrastructure | Modern, scalable, secure |
| Connectivity with business partners | Robust integration with custodians, administrators, distributors, platforms |
| Distribution and geographical support | Presence in key markets and time zones |
| Capacity | Large enough to absorb the business |
The ideal partner is best thought of as a kind of docking station: always ready, compatible with different outsourcing models, able to connect at varying depths, and capable of stepping in early to steady operations.
Outsourcing begins with the first thought
Fundamentally, outsourcing is defined by the internal uncertainty that exists long before a transition takes place. The right partner anchors stability, absorbs risk, adapts to scope changes, and ensures reliable execution throughout the journey.
To discover more about whether any of your operations might be better outsourced to a trusted partner, please feel free to contact us.
