Pentagon frequently engages in numerous discussions and projects relating to ‘Middle Office’ activities and enhancement programmes. With a client base predominantly split between investment management and major security/fund/asset services providers (“outsourcers”), topics are similar, but the areas of considerations are often differ depending on whether the views relate to in-house enhancements or the services being offered by outsourcers.
Some investment management companies, with plans for strategic in-house development, see value in retaining middle office business processes and (to a key extent) risk and regulatory controls. As such, even though they may outsource ‘back office’ operations they plan to develop their middle office capabilities and technical abilities, rather than considering further outsourcing options. One obvious challenge associated with this approach is cost and budget constraints and inevitably time to market for process enhancements and the solutions they adopt. However, the sense of risk and regulation controls along with process ownership overrules the potential benefits from outsourcing core operational processes in this area.
Defining what constitutes ‘middle office’ processes verses the common definition of back office practices is an on-going debate, with middle office often being considered “all the rest”, when it does not fall into core front office and dealing activities or fund accounting, transaction process and reconciliations.