Autonomous driving and the road to outsourced dealing services
Driverless cars are no longer the fantasy of dystopian futures as seen in Minority Report: estimates suggest that by 2020 there will be 10 million self-driving cars on the road.
For pension funds considering insourcing their asset management (for those asset classes where it makes sense from a cost and governance perspective), an outsourced dealing desk has some compelling arguments. Perhaps the most important is that – much like a self-driving car – you can retain control while benefiting from a completely autonomous and reliable platform.
Picture this: with a self-driving car, on a journey to a new destination, you give your instructions i.e. your destination, your timing, the road you’d like to take. You completely keep control of the vehicle. This innovative car is then able to drive safely in dense traffic and in line with regulations, carrying out your instructions. As the passenger, you can concentrate on value-added activities: get in touch with friends, read the news, make the best of this free time.
You can apply this analogy to dealing services. Here, you benefit from an open-architecture model (multiple brokers/counterparties), you set the parameters and can rely on an expert team with a track record, you benefit from best execution processes and better access to liquidity. This allows a pension fund’s portfolio managers to concentrate on investment decision-making.
What are the key issues when considering the internal dealing versus outsourced dealing models? How do you evaluate the associated costs? How do you ensure better access to liquidity and strengthen best execution processes?
In 2013, RPMI Railpen took the strategic decision to insource some of its investment activities, for active management by its internal investment team. They decided to partner with an external provider for their market transactions that was independent of their portfolio managers. “Our decision to select BNP Paribas Dealing Services was driven by their expertise across asset classes and robust technology platform, which will help us develop our new investment process in the long run. We also valued their distinctive broker-neutral positioning and long track record with a wide range of clients.” says Rachit Sharma, Senior Investment Manager at RPMI Railpen.
 Source : BI Intelligence Estimates, 2015
 RPMI Railpen manages the assets of the Railways Pension Scheme (RPS) on behalf of its parent company the Railways Pension Trustee Company Limited. Railpen Investments, its investment arm, is an FCA authorised investment manager with assets under management that exceed GBP 21 billion.