Growth in the Middle Office 

What was once considered undefined and simply a conduit for everything between the front and back office investment areas, the middle office, also referred to as investment operations, is a strategic component of the investment lifecycle.  It has now evolved into a clearly defined business model including trade capture, investment accounting, data management, reconciliation, performance, compliance, and client reporting.  Trading and specifically derivatives, are achieving greater automation capabilities.  Data management has led to more efficiency and consolidation that has significantly improved a firm’s ability to leverage data across their business and technology architecture.  System integration is a beneficiary of the improvements with data management and has allowed for higher rates of straight through processing.  Even operating models and leveraging offshore capabilities continue to improve while still addressing the challenges with service levels and business continuity.

Challenges Continue

However, there are still many challenges that the industry is facing in the middle office with regards to building automation, retaining expertise, and outsourcing.  Many firms have focused their attention to implement innovative technology and have gotten stuck in never-ending development efforts, open-ended business requirements, and continued demands from investment managers.  Other firms have explored and initiated outsourcing efforts that have achieved similar results.  In many cases, achieving a ‘live’ environment and/or the target operating model is near impossible given the on-going demands of the market, regulators, and the business.


As firms continue to achieve successes and address the myriad of challenges, many are also struggling to measure success in the middle office.  Accurate and timely NAV’s works for the back office, but the middle office has only so many KPI’s.  They are also measured by the general satisfaction of the front office investment managers which is not usually covered in an SLA.  Managers are not willing to compromise to change what’s been done for years.  The concept that managers don’t need to change the way they work needs to change.  Firms jump through hoops to make things work for managers, yet when one gets into the details, what the manager actually needs is quite different than what is being produced and could be supported in a different way.


Outsourcing is still a popular option for many managers.  Both service providers and technology vendors have grown significantly over the years to offer more streamlined services.  The industry leaders are guiding their clients and prospects as opposed to the reactive approach that existed when the funds business was growing, evolving and still in the learning phase.  However, they still face implementation challenges as many times the scope of work is a moving target and often too large for a long phased implementation.  In some case, the scope of work at the time of the deal is often stale by the time the implementation is in progress.  In addition, sometimes managers don’t know enough about the work that they’re outsourcing.  “Scope creep” even within a manager’s organization is often unknown.  Managers are used to simply asking for what they need, which is fine, but often it just gets done without any tracking of it or documentation.  This all comes to a head when outsourcing and can often lead to compromise or conflict.

Service Quality

Another key component in the middle office is the talent and skills of the team.  For many firms, the business and technology areas may only be comprised of a few resident experts.  These few people are very often required for every single meeting, decision, and design.  This resource bottleneck significantly slows down and can negatively impacts progress.  While the expertise continues to grow, it’s essential that the middle office is equipped with the right resources.  The best firms in the industry are the ones that have a proactive team that works well together and can predict or strategize with their end user or client.  They are quick to plan and apply action to resolve new requirements, meet market demands, and address issues.

For more information about the middle office, please contact Dan Ahern at or Keith Totten at