The Onward March of Managed Services

It has been a busy start to the month for vendors of managed services in the enterprise data management (EDM) space.

At the start of last week, Bloomberg and Markit announced they have agreed to distribute one another's reference and pricing data via the managed service offerings of their respective EDM businesses, Bloomberg PolarLake and Markit EDM.

Then, in a significant vote of confidence for EDM managed services, UBS revealed it has chosen to use Markit EDM's hosted platform for instrument reference data mastering across all asset classes globally.

Some observers point out that managed services are nothing new. They say that before data vendors existed, the work data vendors do – aggregating feeds from exchanges, calculating evaluations and so on – was performed in-house by financial firms. Therefore, data vendors have been providing managed services for a long time.

However, there are good reasons why managed services are receiving increased attention.

At a time when firms are under pressure to reduce costs and comply with a multitude of regulations, managed services allow them to free up valuable resources by outsourcing the acquisition, management and distribution of data to a third party.

Because managed service vendors are performing similar tasks for multiple clients, they can generate economies of scale and reduce costs for their clients. While benefiting from the sorts of savings commonly associated with utilities, managed services offer client-specific processing that allows firms to maintain their own business rule.

Managed service vendors can also help firms to react quickly to changing business and regulatory requirements. Well-resourced vendors can, for example, invest in the infrastructure needed to do more data storage and provide transparency into the historical use of data.

Despite these advantages, firms are being very careful about which data they use managed services for and which data they keep in-house. When weighing up the pros and cons of managed services, firms are very aware of the inherent risks of working with a third party and they are being careful not to lose any of the important knowledge and skills they have built up over many years.

As a result of these concerns, hybrid models are becoming attractive. Firms are using vendors to manage non-proprietary data—such as reference, pricing and corporate actions data—and then bringing that data to a locally installed EDM platform, where they combine it with more sensitive data, such as their trading positions, fund information and customer data.

However, with little let-up in the pressure to reduce costs and with many regulations due to take effect next year, it will be interesting to see whether firms' attitudes towards managed services change. Will the flexibility and financial benefits of managed services result in financial firms increasing the types of data they are willing to outsource? Or will concerns about risk and losing intellectual property remain as a cap on the growth of managed services?