Middle office outsourcing surges as managers embrace external support: Citco

GRAND CAYMAN, CAYMAN ISLANDS — Alternative investment managers are increasingly outsourcing their middle office functions, with transaction volumes reaching record levels in 2024, according to new data from Citco, an asset-servicer to the alternative investment sector.

Treasury and collateral management see dramatic growth

The value of outsourced treasury transactions processed by Citco jumped 27% year-on-year to almost $2 trillion in 2024, with new monthly records for payment volumes occurring consistently throughout the year. 

This significant increase reflects a growing trend among fund managers to seek external support for non-core activities.

Collateral management outsourcing also saw substantial growth, with collateral transactions rising by almost a third and the value of margin movements processed surging by approximately 75%. 

Trade operations outsourcing similarly experienced significant upticks, continuing the growth momentum established in 2023.

Industry experiencing a “generational shift” to middle office outsourcing

Ryan Fitzgerald, Head of Middle Office Solutions at Citco Fund Services (USA) Inc., describes the current trend as a fundamental change in industry mindset.

“2024 was another impressive year of growth for middle office, with more clients than ever before outsourcing this function. While middle office has historically been handled internally, the mindset among alternative asset managers, as well as corporates and banks, is changing,” said Fitzgerald.

Fitzgerald compared the evolution of middle office outsourcing to the adoption of cloud technology over the past decade. 

“A decade ago, businesses wanted everything on their own premises but fast-forward to today, and you would be hard pressed to find anyone who doesn’t have data in the cloud,” he noted.

“We see the same thing happening for middle office – we are on the cusp of a generational shift, with managers starting to see the benefits of the major advancements in technology and servicing which they can utilize to help scale their own businesses faster,” Fitzgerald added.

This shift comes as alternative fund managers increasingly recognize the strategic advantages of outsourcing non-core functions, allowing them to focus on their primary investment activities while leveraging specialized expertise and technology from service providers like Citco, which currently administers $2 trillion in assets across 36 countries.

The trend suggests a fundamental restructuring of how investment firms approach operational efficiency, with middle office outsourcing becoming an increasingly standard practice rather than an exception in the alternative investment sector.