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New York – With fears of recession looming, many institutional investors are undoubtedly worrying about the impact an economic downturn may have on their investment portfolios. To offset losses from a potential downturn, we suspect that the more proactive financial institutions have already begun investigating cost-cutting measures. For many buy side and sell side institutions, research is a cost center, and as such, it is a likely candidate for restructurings and downsizings. The recent rise of the Knowledge Process Outsourcing (KPO) industry makes this scenario especially likely, but the decision of whether and how to outsource analytical work will not be easy.

Knowledge Process Outsourcing is a great way for financial institutions to leverage a vast pool of relatively inexpensive analytical talent. Although it may be hard to find appropriately qualified applicants for senior-level analytical positions in KPO centers like India and Singapore, these places are filled with credentialed candidates who can provide junior analyst support or maintenance research at competitive rates. Yet outsourcing analytical work is not always a clean process. Managing outsourced research teams can be tricky, especially in countries that are distant and foreign.

Research firms that have decided to outsource some of their analytical work also face the question of whether to establish a captive KPO structure or employ a third-party KPO firm. In recent years, dozens of KPO firms have emerged to serve the needs of buy side and sell side analysts, and intense competition in this sector has driven down prices for many of the services provided by third-party KPO firms. For companies that have an ongoing need for outsourced analytical support, however, captive KPO structures might make the most sense in the long-term, even if there are hefty start-up costs in the short term.

Integrity is watching development in the KPO sector closely and tracking the offerings of the major KPO firms. In our upcoming ReseachFocus report on channel checking, we will provide information on the KPO firms that are best suited to provide outsourced channel checking services (in addition to other providers of channel checking work). Eventually, we plan to produce a major report on how buy side and sell side analysts can leverage KPO to enhance and streamline their analytical processes. 

In the meantime, stay tuned for more analysis on the KPO sector in these pages.