The middle office provides the front office with critical information necessary for trading strategy, making it a vital part of the investment management process. Because of that, asset managers need to exercise a higher level of due diligence when selecting a middle-office outsource partner. Proof of concept (POC) has long been included as a standard step in the technology selection process and is now also becoming an emerging recommended practice in the selection of an outsourcing partner.
Through a POC, asset managers gain insight into how the service provider’s core systems will support specific scenarios. They also gain exposure to data output along with the method in which they will be interacting with the data, and experience firsthand interactions with some of the people who would be supporting their business in the future.
Most outsourcing arrangements are, by nature, long term. Therefore, it is important to learn as much as possible about both parties. Due diligence provides the opportunity to discuss capabilities and operating models, while a POC offers the ability to further validate specific high touch scenarios which will ultimately help lead to a more informed decision. Having a clear understanding of service provider capabilities allows the asset manager to design an operating model that is based in reality and has the potential to evolve over the course of a successful long-term partnership.