Industry Insights: When Outsourcing is Optimising

Globally, the investment industry is experiencing profound change – according to the hundreds of C-suite asset management executives and institutional investors surveyed in the latest Carne Change 2025 report.

Perhaps the most profound change is the significant uptake in outsourcing. Managers are using third party specialists for three specific and material needs. Firstly, they must keep pace with evolving investor demand and increasing scrutiny; secondly to deliver growth strategies and new products; and thirdly to achieve cost savings. For smaller firms these are critical if they want to retain their independence.

Managers under the microscope

The first of these structural shifts driving outsourcing sees managers under the microscope.

There is a surge in client and regulatory scrutiny, focused especially on manager reporting, transparency and corporate governance. For example, 87% of institutional investors rejected a fund manager in the last three years because of their poor standards of corporate governance.

Managers are responding in two ways:

• They are improving internal processes. This is already making a difference to clients, 76% of whom see improvement in infrastructure managers’ governance, with 72% saying the same for real estate. Other asset classes display similar numbers.

• They are outsourcing. Fund managers themselves acknowledge that third-party providers help them meet the client need for higher standards, better reporting and more transparency. Moreover, 88% believe they must increase their use of such specialists over the next 12 months, with 49% predict a dramatic increase.

Of course, outsourcing non-core, essential functions is also a growth enabler. Managers can become more efficient thanks to an appropriate partner’s specialist knowledge, infrastructure and technologies.

Bullish predictions – sweeping visions

The product and distribution capabilities of third parties may also hold the key to unlocking growth from new asset classes, products, and markets – according to hundreds of senior professionals.

A crucial path to growth is fund inflows. Here, optimism abounds. The study found 81% of fund managers expect the flow of new capital into their funds and segregated accounts to increase during 2025.

The volume of new capital brought by such flows will be significant. More than two-thirds say flows will be 10% to 25% greater than in 2024 – and 27% expect flows up to 50% higher. These are some of the most bullish predictions across any of the Carne Group Change reports.

To realise these growth ambitions, managers require appropriate opportunities to gather assets and deploy them in strategies that deliver the risk and returns their clients need. This is why 88% are planning to raise assets overseas. It is also why 84% expect the number of new funds launching in their sector to exceed 2024.

Appetite for ETFs has risen considerably, and the vast majority (82%) of investors are moving ETFs from short-term asset allocations to core portfolio holdings. As a result, almost all (97%) of equity and fixed income fund managers deem offering ETFs important to the future longer-term prospects of their organisation.

Growth strategies will inevitably involve taking new product types to market. If we take ETFs as an example, the majority of the C-suite fund managers we spoke with are outsourcing to overcome regulatory, operational and resource constraints when bringing ETFs to market. 64% will use third parties to select service providers, 57% to prepare prospectuses and legal documents, and 53% for help with submissions to the regulator.

Smaller firms find a way to compete

The complicated and convoluted nature of modern investment regulation continues to pose problems for managers: almost all (98%) of managers say regulation will become more complicated by 2027 – and even more (99%) of institutional investors agree.

This is one of several pressures begetting market consolidation. The extra trial of fundraising challenges could well lead to the number of private market fund managers shrinking. Some 88% of fund managers believe consolidation will increase over the next five years, across all asset classes.

Smaller firms have a choice: give into consolidation or pivot to third party outsourcers and survive, with independence unharmed.

Turning to specialist third parties for regulatory compliance and to meet high investor standards enables smaller firms to survive such pressures.

Outsourcing can enable a smaller manager – as well as larger ones – to devote more internal resource and bandwidth to the things that make the greatest difference to underlying investors: investment performance and client service.

The full report is available to download below, alongside recommendations to future-proof during this time of transformation.

View Change 2025

For more information and insights visit Carne Group.