Outsourcing of middle office activities related to the fund management of a multilateral development bank

Abstract

The subject of this work is an outsourcing feasibility study for a multilateral development bank, a financial institution established in Luxembourg constituting together with the International Fund, the International Investment Group. The Bank hired Deloitte Luxembourg to be assisted in shaping an outsourcing relationship with the Fund encompassing the Middle Office activities for fund management.This request has been prompted by the Management Committee of the Bank which stressed the importance of development of synergies between the Bank and the Fund. In the past, the Bank had a fund management Service Level Agreement with the Fund which has not provided the expected benefits to the Bank. The aim of this thesis is twofold. First, it wants toprovide a recommendation on which outsourcing methods would be beneficial to achieve the requests of the client and identify what are the risks and benefits associated with each of them. The second objective aims at verifying the existence of eventual gaps and shared aspects among Deloitte Luxembourg approach and current market best practices. The methodology used to achieve the primary objective is based on the following phased approach: Project organization and data collection; Comparative analysis and past SLA assessment; Scenarios formulation and analysis. Looking at the institutions through four different criteria (general set-up, organisation, activities and controls and IT systems) has helped me to assess three potential scenarios to create synergies: Full in house with improvements; No outsourcing of Middle Office activities and Full outsourcing of Equity Fund M/O activities. The outsourcing methods used to provide a recommendation to the International Bank, take mostly inspiration from industry’s best practices rather than simply from Deloitte approach. These two frameworks have many aspects in common. Both methodologies require financial institutions to perform a detailed assessment to identify core activities and non-core ones and to maintain in house the unique and differentiating functions. The main differences lay in the outsourcing deal structure.