Opportunity Zones are entering a new phase.

Created in 2017 to encourage private investment in economically distressed communities, the Opportunity Zone program has become an established channel for investment through Qualified Opportunity Funds (QOFs), with real estate a significant part of the market. By the end of 2024, QOFs held approximately $112 billion of qualified Opportunity Zone property, according to the U.S. Treasury.

Now, two developments are bringing the market to an inflection point. For investors in the original generation of QOFs, December 31, 2026 marks the statutory recognition date for gains previously deferred under the program. At the same time, legislation enacted in 2025 made Opportunity Zones permanent, with a new round of zone designations taking effect from January 1, 2027 and subsequent rounds every 10 years.

For real estate fund managers, that means managing two realities at once: established Opportunity Zone portfolios moving further into their investment lifecycle, and a new generation of investment beginning under a permanent framework.

What is changing for Opportunity Zones in 2027, and what does it mean for real estate managers?

Opportunity Zones 2.0 broadly describes the next chapter of the program. Beginning in 2027, the framework moves to recurring 10-year zone designations, alongside new provisions for rural Opportunity Zones. Rather than approaching an endpoint, Opportunity Zones will become a permanent feature of the U.S. investment landscape.

At the same time, the first generation of Opportunity Zone funds is maturing. Capital has been deployed, properties have been developed or repositioned, financing arrangements may have changed, and portfolios are moving further into their holding periods.

The result is a shift in focus. Formation and deployment remain important, particularly as the next generation of QOFs emerges, but they now sit alongside the longer-term demands of administering established funds, entities and underlying real estate assets.

For real estate managers, those demands extend well beyond the fund itself.

What does the next phase mean for fund operations?

Opportunity Zone investments often involve multiple legal and operational layers between the investor and the underlying real estate. A QOF may invest through one or more Qualified Opportunity Zone Businesses (QOZBs), alongside holding companies, SPVs and property-level entities.

As these structures mature, activity at the asset level increasingly feeds accounting and reporting elsewhere in the structure. Property income and expenses, capital expenditures, financing activity, valuations and cash movements ultimately connect back to fund books and investor reporting.

Each process is familiar on its own. The operational challenge is keeping them connected.

Where property accounting, entity administration and fund accounting sit across different systems or providers, information may arrive in different formats and at different times. Refinancings, follow-on capital, asset sales and other lifecycle events create additional points at which records need to reconcile.

For operations teams, three considerations become particularly important as Opportunity Zone portfolios mature:

1. Connecting data across the structure
   Property-level information needs to move through QOZBs, SPVs and other entities into fund-level accounting and reporting without unnecessary re-entry, reformatting or reconciliation.
2. Maintaining consistency through lifecycle events
   Valuations, refinancings, capital activity, distributions and eventual realizations can affect multiple parts of the structure. Keeping records aligned across entities becomes more important as that activity increases.
3. Keeping responsibilities clear across systems and providers
   Where multiple teams or service providers support the structure, clear ownership of data, accounting and reporting processes reduces the risk of gaps between what is happening at the asset level and what ultimately reaches the fund and its investors.

Why connected data matters more as portfolios mature

As portfolios mature, the quality and consistency of underlying data become more consequential.

Spreadsheets and manual processes may be manageable for a concentrated portfolio. But as the number of assets, entities, investors and financing arrangements increases, so do the points at which information has to move from one part of the structure to another.

The issue is not simply having more data. It is whether property-level information can move through the structure without repeated re-entry, reformatting and reconciliation.

That connection matters for fund accounting and NAV calculations, valuations and investor reporting. The December 31, 2026 recognition date also brings an important milestone for investors in the original generation of QOFs, reinforcing the importance of consistent records across the life of the investment.

Over longer holding periods, a consistent historical record becomes increasingly valuable. A connected data foundation can reduce manual work while making it easier to trace information from the underlying asset through to the fund.

What does a maturing Opportunity Zone portfolio mean for investor reporting?

The investor relationship also changes over the life of an Opportunity Zone investment.

During fundraising and deployment, communication tends to focus on commitments, capital calls and investment activity. As portfolios mature, the emphasis shifts toward asset performance, valuations, distributions and, eventually, realizations.

Opportunity Zone structures add another layer because much of that information originates across underlying entities and properties rather than at the fund itself.

That puts greater weight on the connection between property-level information, fund accounting and investor records. Where those records are consistent, reporting and investor queries are easier to support. Where they are fragmented, answering a seemingly straightforward question may require information from several teams or providers.

This is not unique to Opportunity Zones. Across private markets, investors are seeking more detailed and timely information about their investments. But the multi-entity nature of many Opportunity Zone structures makes the connection between the underlying asset and the investor particularly important.

How can different teams prepare for the next chapter?

The next phase of Opportunity Zones will not affect every function in the same way. For real estate managers operating existing QOFs — and those considering future Opportunity Zone strategies — the implications are particularly relevant across three core functions.

1. CFOs and finance teams: establish a consistent financial view across the structure As portfolios mature, property activity, financing, valuations and cash movements increasingly flow through multiple entities before reaching fund-level reporting. The trade-off is increasingly clear: processes that may have been manageable during deployment can create more reconciliation as portfolios mature. Connecting those records provides finance teams with a more consistent view across valuations, fund accounting and investor reporting.
2. COOs and operations teams: identify where operational handoffs can break down QOFs, QOZBs, SPVs, property entities, administrators and other providers may all play a role in the same investment structure. Greater coordination across those parties requires more discipline around processes and ownership but reduces the manual handoffs and information gaps that become harder to manage as structures mature.
3. Investor relations teams: prepare for a different set of investor questions
   As portfolios move beyond deployment, investor attention increasingly shifts toward performance, valuations, distributions and the path toward realization. Meeting that demand for greater transparency depends on timely, consistent information from finance and the underlying assets — reducing the time spent pulling together answers from fragmented sources.

These considerations are becoming more relevant, not less. New Opportunity Zone designations take effect in 2027, while existing portfolios will continue through their investment lifecycles. For real estate managers, that means new fund formation and mature-fund administration will increasingly sit side by side.

The next chapter of Opportunity Zones may be shaped by new rules and new investment. But its execution will also depend on something more familiar: maintaining a clear, consistent connection between the assets, the fund and its investors over the life of the investment.

Repeat business is a hallmark of successful organizations across sectors, and private markets are no exception.

A long-standing industry rule of thumb has been that top performing private market managers will usually enjoy re-up rates of between 80% and 90%. Dip below a 50% re-up threshold, by contrast, and your firm could face an uphill struggle to remain viable.

A high re-up rate signals confidence among existing limited partners (LPs) and provides a strong reference for prospective investors. It also benefits a GP’s bottom line. Re-upping an existing investor is generally less costly and resource-intensive than onboarding a new one, which can involve up to six months of manager due diligence as well as new know-your-client (KYC), side letter and service-level agreement (SLA) documentation.

How operational maturity builds LP re-up conviction

For middle-market managers in the early stages of growth, becoming a GP that LPs want to back again is an important goal. Achieving it has become harder in the current fundraising environment.

As discussed in the previous article, LPs value managers they can support across successive fund vintages. But liquidity constraints are making those relationships harder to sustain. According to Allianz, LPs have reduced the number of GP relationships by 20% to 30%. A Coller Capital survey found that almost 80% of LPs had declined to re-up with an existing GP, citing factors that included performance, internal cash constraints and strategy changes.

There are select groups of managers, however, that are bucking the trend. Specialist European software company Main Capital Partners reported a 120% re-up rate for its most recent fundraise. Oakley Capital and Nordic Capital are among the firms to secure 100%-plus re-up rates for funds closed post the 2021 market peak.

Strong investment returns and distributed-to-paid-in (DPI) ratios remain essential to securing re-ups, but they increasingly need to be supported by a robust operating model. In private markets, operations are moving beyond a back-office function: they can give deal teams better information for sourcing and help GPs deliver more consistent LP interactions.

LPs are more likely to back future funds when a GP can show that its operating infrastructure can support growth, govern an expanding number of fund entities and manage larger portfolios. Even when performance is acceptable, delayed reporting or calculation errors caused by under-scaled operations can influence an investor’s decision to re-up.

Delivering an institutional-quality investor experience

A high-quality investor experience can support re-up rates, and it depends on the operating model behind it.

LPs increasingly expect an institutional-quality experience from the start of manager due diligence. Track records should be clear and transparent, financial information in the data room consistent and well organized, and responses to diligence questions timely.

Onboarding should be just as efficient. Know-your-client and anti-money-laundering checks, subscription documents and capital-call procedures all need to be coordinated and easy to follow. In a Fenergo survey of 450 asset managers, 74% of respondents reported losing a client because of slow or inefficient onboarding.

That smooth onboarding experience needs to continue throughout a fund’s life. LPs should be able to access tax and legal documents, financial reports and portfolio performance through secure investor portals, with advance communication about capital calls and distributions.

When the private markets industry was smaller, GPs could manage LP relationships through PDFs and email. Growth in assets under management (AUM) and structural complexity make it harder to maintain service levels without a technology stack that connects customer relationship management (CRM), portfolio management and fund accounting data.

Without connected systems, information becomes fragmented across emails, spreadsheets and platforms. That slows report production and responses to investor questions, while manual reconciliation increases the risk of errors.

Building trust

The importance of fine-tuning the investor experience, however, extends beyond simply making financial data readily available through sophisticated LP portals. It also addresses a more fundamental question of LP trust.

In the latest Institutional Limited Partners Association (ILPA) LP Sentiment Survey, 12% of participants said conflicts of interest with GPs were improving, while almost a third (32%) said they were worsening. The share of LPs who viewed valuations as worsening nearly doubled to 17%.

How GPs mark assets in their portfolios is attracting closer scrutiny in a weaker exit market. When GPs delay exits because assets can’t be sold at book values in the current market, LP confidence in portfolio company marks erodes.

GPs that provide transparent, consistent disclosure can stand out in a competitive market. Adopting ILPA reporting templates is one way to demonstrate that commitment. The templates are increasingly viewed as a reporting benchmark and address common LP concerns through standardized disclosure.

The templates facilitate standardized reporting that LPs can immediately ingest directly into their own systems, and specify detailed fee offset and returns disclosure. Formats can’t be adjusted, simplifying manager benchmarking for LPs.

Meeting ILPA template requirements calls for an operating model that can support detailed data and technical standards. Managers may need to report how portfolio-company fees are offset against management fees and track multiple return measures, including IRR, DPI and TVPI, both with and without the impact of capital-call facilities.

This can be a significant undertaking for emerging middle-market managers. Those that prepare early can be better placed to earn LP support by demonstrating transparency and reliable reporting.

A CFO’s operational readiness test

For a CFO, the question is whether the firm can deliver accurate, consistent investor reporting as fund count, portfolio complexity and LP expectations grow, without allowing cost and control gaps to grow with them.

Before the next fundraise, CFOs can test the operating model with a few practical questions:

• Can we produce timely, consistent LP reporting across funds and jurisdictions, with clear ownership of the underlying data?

• Can we explain valuations, fee offsets and returns in enough detail for LP review, including the effect of capital-call facilities?

• Do our onboarding, diligence and investor-service processes scale without relying on manual workarounds or repeated reconciliation?

• Where are the gaps best addressed through internal investment, process standardization or specialist fund-administration support?

The answers can help CFOs prioritize investment, strengthen controls and give investors greater confidence in the firm’s ability to manage future funds.

When an LP makes an allocation to the latest fund vintage of a private markets GP, the decision usually sits within an investment plan that has been years in the making. Investors set commitment plans years in advance to maintain vintage diversification, typically mapping allocations over a three- to seven-year period, according to Preqin.

Given the long-term nature of LP investment planning, and the resource-intensive manager due diligence process, LPs do not want to start each year from scratch. They seek to build long-term relationships with managers they believe have the investment strategy, track record and execution capability to generate sustainable returns over time.

The GPs that have raised their next billion, and then the billion after that, understand this. It is no coincidence that many leading multi-strategy firms have received backing from the same investors throughout that growth journey.

Strong performance in a GP’s latest fund will support fundraising. But when genuine manager skill and franchise consistency are harder to discern, one strong vintage alone may not build lasting LP conviction. The greater prize is long-term investor support across multiple cycles.

Investing today to scale tomorrow

The ability to earn this deep investor backing has become as much an operational question as one of pure financial returns. The firms that move successfully into the next phase of growth are defined by both. Investment performance is non-negotiable, but managers must also show that their platform can sustain it as the business grows.

In our first article in this series, we explored the operational inflection points managers encounter as AUM grows. At certain stages, a model that worked well in the past comes under strain as GPs raise more funds, manage larger portfolios and serve a broader investor base. Managers must strengthen their fund operations at each inflection point to sustain growth.

A consistent feature of successful growth is the decision to build institutional infrastructure before it becomes an urgent necessity. Middle market managers that invest early can gain a lasting commercial advantage. LPs can see that a manager receiving an allocation in year one will have the operating capacity to absorb a larger allocation in year five and beyond.

A GP can produce exceptional returns in its first fund while relying on a basic customer relationship management (CRM) system and general accounting software. LPs will still question whether those results are sustainable without stronger operational infrastructure.

A GP that scales its operational infrastructure ahead of growth is in a much stronger position to build LP conviction.

The four pillars of institutional infrastructure

Every GP follows a different path, but four themes recur in successful middle market growth stories: the operating model, technology infrastructure, data management and investor experience.

1. Building the operational model:

A scalable middle market franchise starts with a clearly defined operating model.

For GPs that have historically maintained lean infrastructure and shared operational duties among partners, the first step is to decide what stays in-house and which functions should be outsourced.

The chosen model should support repeatable workflows without depending on a small number of key individuals. GPs can build fund operations in-house, outsource fund administration and other functions to specialist providers, or adopt a co-sourcing structure.

Each model has trade-offs that GPs should assess against their objectives, resources and control requirements. Building an in-house team gives GPs greater control over data, but also brings fixed overheads and ongoing technology investment that can be difficult for a middle market manager to carry alone.

Outsourcing offers a more variable cost base and gives GPs access to a provider’s technology, geographic reach and specialist expertise. The trade-off is that data will typically sit within the provider’s environment, making data access, portability and the practicalities of switching providers important due diligence questions.

Co-sourcing provides a third route. Data remains in the GP’s cloud environment and under its direct control, while a third-party specialist supports the service. This model can preserve data ownership, although it may not deliver the full cost benefit of outsourcing because internal teams must still maintain the cloud infrastructure and software. Provider choice is another consideration, as relatively few fund administrators can deliver a genuinely tailored co-sourcing model.

There is no single right answer. The strongest middle market GPs review the options carefully and implement the operating model that best fits their requirements.

2. Technology infrastructure:

Running a firm on email and spreadsheets becomes unsustainable as complexity grows. Middle market managers eventually need institutional-grade CRM, fund accounting and portfolio monitoring systems if they are to scale efficiently. GPs generally follow one of two routes when selecting a technology stack, and each has advantages and trade-offs.

All-in-one, ERP-like solutions can simplify implementation and management. However, private markets-specific ERP options are relatively recent, while conventional corporate systems may require additional applications for fund accounting, capital account management and other specialist requirements.

Best-of-breed software offers deeper specialist functionality, but requires GPs to establish and maintain integrations between systems.

Whichever route a GP follows, its CRM, portfolio management and fund accounting systems must connect well enough to create a reliable single source of truth and reduce reconciliations across separate systems, spreadsheets and documents.

3. Doing more with data:

Private markets data has evolved from a byproduct of day-to-day activity into a core input for investment decisions, performance benchmarking, investor reporting and regulatory compliance.

Managers that scale understand its importance and establish rigorous data collection and governance standards.

They also identify the data that matters most, from portfolio company financials and fund performance to ESG metrics. Clear data standards across portfolio companies can then support automated collection and consistent dashboards.

4. The investor experience:

The pillars of operating model, technology and data ultimately funnel down to support the fourth and final pillar of investor experience.

Investor expectations are rising. LPs increasingly expect self-service portals and near on-demand visibility of capital calls, distributions and fund performance. Delayed, backward-looking reporting shared through static PDFs can create friction during operational due diligence and fundraising.

This investor experience depends on the operating model, technology and data foundations already being in place. GPs that prepare early can spend less time gathering information in response to LP requests and more time discussing what the data means.

Key considerations for the next phase of growth

Before choosing an operating model or service provider, managers should test the current environment against the needs of the next fund, rather than the last one. Can processes absorb more funds, vehicles, jurisdictions and investors without adding manual work or weakening control?

That assessment should cover four areas: the division of responsibility between internal teams and external partners; integration across CRM, portfolio monitoring and fund accounting; data ownership, governance and portability; and the timeliness and quality of investor reporting.

Any fund administrator or operating partner should be assessed on private markets expertise, technology, controls, data access, geographic reach and the ability to adapt as requirements change. The right model should reduce key-person dependency, preserve oversight and give LPs confidence that growth will not outpace the operating platform.

There comes a point in every high-growth business’s development where the operational rails that supported its first wave of rapid expansion begin to creak.

In Japan, management consultants and corporate leaders refer to the “organizational wall”: the point at which previous management models become obsolete and must be overhauled as headcount and revenue clear certain thresholds. McKinsey analysis similarly shows that midsize company performance can flatten when businesses reach a certain scale without refreshing how they work.

For decades, middle-market private equity firms have helped portfolio companies move through these growth inflection points by professionalizing management teams, deepening finance capabilities and upgrading technology infrastructure.

But while private equity managers have concentrated on supporting portfolio company business transformation, they have focused less on upgrading their own operations.

This is changing. Private capital assets under management (AUM) have increased 18-fold over the last two decades and currently stand at around US$18 trillion.

GPs are responsible for stewarding materially larger sums of capital, invested by increasingly global investors, and have to institutionalize their franchises to absorb current demand and lay the foundations to support future growth.

The operational inflection points in a private equity firm’s growth journey

Most middle-market private equity firms will encounter similar organizational inflection points as they evolve from boutique firms with small investor bases into larger organizations deploying institutional capital.

At the start of this growth cycle, when emerging middle-market managers are finding their feet and completing their first deals, firms are characterized by small teams and limited fee income. At this stage, GPs will typically be managing a single private equity fund that will rarely exceed US$250 million. Fund administration is relatively simple at this phase. Operations teams can be kept lean, while core fund accounting and investor reporting can be outsourced to a third-party provider. Investors in these GPs will usually participate through emerging manager programs and accept that operational infrastructure is still being built.

If successful, emerging managers face their first organizational inflection point as they transition into small-cap and lower-middle-market private equity firms. Operational complexity begins to build during this phase of development, according to consultancy network Umbrex.

GPs will have raised two or more flagship funds by this stage, and if performance is sustained, fund sizes will expand at an accelerated pace. Sidecar funds and co-investment funds will also come into the frame, as managers in the segment begin to source deals that can’t be accommodated by current funds. This places higher demands on operations teams, as they have to report and account for more investment vehicles.

The operational demands continue to intensify as firms graduate to the next phase and move into the core and upper-middle-market brackets, where investor expectations for reporting and disclosure increase and managers expand into new geographies or launch new investment strategies.

Middle market GPs in these segments are managing international office networks, building in-house value creation teams, institutionalizing the investor relations function, adopting Institutional Limited Partners Association (ILPA) reporting guidelines and producing environmental, social, and governance (ESG) reports.

As firms approach each of these inflection points, deeper operational, technology and data capabilities become increasingly mission-critical to meeting more demanding regulatory and compliance obligations.

Investing in front of the growth curve

Upfront investment in operational infrastructure allows GPs to mitigate risk as their franchises progress through the operational inflection points highlighted above.

For a high-growth middle-market firm in the earlier stages of development, the benefits of making a large upfront investment in operations rather than front-office deal capability are not immediately obvious. One attribute shared by many middle-market firms that scale successfully, however, is that they build institutional infrastructure before it becomes essential.

Proactively scaling up operational capability, rather than trying to backfill capacity retrospectively, creates long-term competitive advantages and unlocks operational alpha. Investing in systems and processes ahead of growth mitigates the risk of operational drag, where fundraising and AUM growth are restricted by internal bottlenecks. These bottlenecks can constrain a manager’s ability to onboard more investors, absorb more capital and produce higher volumes of fund and investor reporting without compromising quality.

Building scalable private equity fund operations

Building operational scale ahead of growth does not simply mean expanding headcount to execute a higher volume of the same tasks. It involves using technology to streamline workflows, automate manual processes and connect portfolio, fund and investor data, enabling faster reporting and deeper performance insight.

Data management is one of the primary levers middle-market private equity managers can use to move from an entrepreneurial GP with limited operational infrastructure to an established firm with an institutional-grade operating backbone.

Internal data can be moved out of manual spreadsheets and into a cloud-based data warehouse that connects with specialist private markets software for fund accounting and customer relationship management (CRM). Software tools with effective APIs are a key enabler of automation. When systems are connected, data from a deal recorded in the CRM can flow automatically into portfolio monitoring and accounting tools without manual re-entry.

Effective data management also supports cleaner, faster LP and regulatory reporting. Manual responses to LP requests and reports emailed as PDFs, for example, can be replaced with secure, on-demand LP portals and self-service dashboards.

Middle-market GPs do not have to manage this operational overhaul in isolation. An outsourcing or co-sourcing partner may already have the technology, data infrastructure and specialist expertise to support growth, freeing the GP’s CFO to focus on higher-value strategic priorities such as liquidity management, tax structuring and portfolio analysis.

Key considerations when preparing operations for growth

As middle-market private equity firms prepare for fundraising, a new strategy or entry into another market, three questions can test operational readiness:

• Can fund accounting, investor reporting, compliance and data processes support more funds, investors and jurisdictions without weakening controls?

• Is data connected across CRM, portfolio monitoring, fund accounting and investor reporting, with clear ownership and governance?

• Which capabilities should remain in-house, and where could outsourcing or co-sourcing add scale, resilience and specialist expertise?

The answers should guide the operating model and choice of partner. Alter Domus supports middle-market managers from core fund accounting and reporting to multi-jurisdictional operations.

The private equity middle market is the engine room of the industry.

It accounts for almost three quarters of the pool of investable companies, and for the last 20 years top quartile middle market funds have outperformed their large cap counterparts by 4.5%, according to analysis from Pantheon.

For decades this outperformance has been driven by entrepreneurial middle market private equity firms led by concentrated teams of experienced dealmakers, who leveraged personal networks and individual deal skills to originate proprietary deal flow and generate strong returns on exit.

The formula for middle market private equity success, however, is changing as the industry expands and the deal market shifts. Global private equity assets under management (AUM) have grown more than ten-fold over the last 25 years to exceed US$10 trillion, according to KKR. The industry is bigger, more competitive and increasingly sophisticated, and delivering returns is becoming more difficult as entry multiples increase, leverage multiples moderate and financing costs rise.

Operational resilience becomes a competitive advantage

Today, private equity’s growth, coupled with the high levels of uncertainty managers and investors face at this point in the cycle, poses significant challenges for the resilience of the traditional middle market private equity operating model.

Allocations to private equity are substantially larger, making LPs more sensitive to downside risk and less comfortable with depending entirely on a handful of veteran managers to steward capital through a particularly volatile market.

When a firm’s dealmaking experience, track record, and accumulated knowledge are tightly concentrated in the hands of a few senior partners, a firm becomes vulnerable.

This fragility becomes more apparent in market headwinds, when the volume of crucial decisions multiplies and firms grapple with dips in portfolio company earnings, delayed exit timelines and prolonged fundraising. Concentrated leadership and a lack of established processes make senior partners a bottleneck for urgent decision-making in a market where responsiveness is essential. In the worst-case scenario, where the pressure becomes too great, a concentrated leadership structure can fracture irreparably.

Key person risk, often referred to as key man risk, has always been on the radar for LPs. With more capital now at stake and a tougher operating environment to contend with, this sensitivity has heightened even further.

Operational resilience means having the processes, systems and organizational depth to keep a private equity firm functioning as people, markets and requirements change. LPs are therefore seeking managers that can demonstrate this depth, rather than depending entirely on specific individuals. Personnel changes are not the only disruption a resilient operating model must be prepared to absorb.

Building a flexible private equity operating model

Middle market private equity managers can build this fund operations infrastructure without adding significant headcount or taking on high upfront capital investment.

Automation, technology and agentic AI are allowing smaller GPs to reimagine the volume and quality of work their operational teams can produce (see Part 2 in the series). By partnering with a global third-party fund services provider, they can access private equity fund administration, accounting and reporting technology without building those capabilities from scratch.

The way middle market private equity firms operate is changing, but the expertise and technology are available to help GPs make the leap from successful entrepreneurial firms, where performance is inextricably linked to the founders, to operationally resilient institutions that can thrive through whatever comes next.

Preparing private equity operations for cyber risk and regulatory change

As technology becomes more embedded in private equity operations, LPs are also factoring managers’ readiness to withstand cyber disruption and regulatory change into allocation decisions.

Cybersecurity is front of mind for all financial institutions. More than four-fifths (82%) of banks, insurers and asset managers surveyed by the Bank of England cited cyberattack as a top-five risk to the financial system, up 10 percentage points from the previous poll.

Organizations are also increasingly economically exposed to cloud infrastructure outages. The cost of system downtime, according to research from Splunk Technology, a Cisco company, has climbed 50% during the last two years and led to a 3.4% average decline in the equity values of the Global 2000 companies.

These risks are not confined to large organizations and pose real challenges for middle market private equity managers, who investors increasingly expect to meet the same standards of contingency planning and risk management as much larger firms. LPs expect GPs, irrespective of size, to have business continuity plans, fallback systems and emergency protocols in place to recover from disruption and continue delivering core functions.

The resilience of GP operations has been further stretched by continuous regulatory change. The UK’s Financial Conduct Authority (FCA) is consulting on reforms to the UK Alternative Investment Fund Manager (AIFM) regime that could lead to rule changes across valuations, liquidity risk management, annual reporting, investor disclosures and marketing. The European Commission is proposing amendments to the Sustainable Finance Disclosure Regulation (SFDR), tightening eligibility criteria for ESG-linked financial products; and the US Securities and Exchange Commission (SEC) is reportedly increasing scrutiny of potential conflicts of interest in continuation vehicle (CV) deals, as well as opening examinations of private fund valuations.

LP reporting and transparency come under greater scrutiny

Increasing regulatory workloads have been matched by intensifying LP expectations around fund reporting, transparency and disclosure. LPs are pushing GPs to include special rights to view internal fund information in fund documentation, particularly around sensitive issues such as asset valuations and conflicts of interest.

There are ongoing challenges for GPs to address, and the margin for error is narrowing.

A multi-firm review of valuation processes for private market assets published by the FCA in 2025 found that most firms only partly identified and documented valuation-related conflicts linked to investor marketing, secured borrowing, asset transfers, redemptions, subscriptions, uplifts and volatility. It also found that many firms did not have defined processes for ad hoc valuations during market events.

This was echoed in the most recent Institutional Limited Partners Association (ILPA) LP Sentiment Survey, which recorded a decline in LP perception of GP behavior with respect to governance terms, conflicts of interest and valuations.

Middle market private equity managers that tackle these LP concerns head-on are gaining an edge in a crowded market, but doing so requires a resilient operating model that can improve and deepen LP reporting and disclosure.

Resilient operating infrastructure is also fundamental for middle market firms seeking to diversify their investor bases in a tight fundraising cycle and unlock capital through alternatives to the 10-year closed-end fund. According to McKinsey, separately managed accounts, co-investment and evergreen fund structures have boosted global private equity AUM by trillions.

New private equity fund structures present middle market managers with a significant opportunity to grow their franchises, but they also add complexity to fund operations. More structures must be administered, often with additional reporting requirements such as producing monthly net asset value (NAV) figures for evergreen vehicles.

Firms that lack rigorous operational infrastructure will struggle under the weight of these demands, while better-prepared competitors will be positioned to grow.

How Alter Domus supports resilient private equity fund operations

Alter Domus gives middle market managers access to a private equity fund services platform with a level of operating resilience that is difficult for a GP to replicate in isolation.

Our global team of 7,000 professionals combines private markets expertise with leading technology to stay ahead of regulatory change and shifting reporting expectations. We have the depth and infrastructure to scale middle market fund operations, helping managers adapt quickly as requirements and workloads increase.

A platform of this size also has the resources and economies of scale to make sustained investment in proprietary technology, automation and AI commercially viable.

GPs can use this outsourced operating infrastructure and scale it with their own growth, without incurring the upfront capital and ongoing maintenance costs of building it in-house.

As a proven global operator that maintains ISO and SOC accreditations for business continuity management, internal controls and information security, Alter Domus has the tools to help middle market firms maintain continuity when faced with uncertainty, and adapt to change with confidence.

Across the private markets industry, firms are having to process larger data volumes from more sources to back up investment decisions and keep pace with reporting and regulatory demands.

An S&P Global GP and LP survey found that more than three-quarters of respondents (77%) reported using at least 50% more data sources than five years ago. More than a third (37%) said the number of data sources they used had more than doubled.

Managing increasing data workloads is a challenge for all firms, but has a proportionally bigger impact on middle market fund managers that run lean back-office teams and lack resources to absorb escalating workloads.

Smaller middle market managers don’t benefit from the same levels of fee income, or economies of scale, that large private markets platforms enjoy. Investing large sums of upfront capital expenditure in upgrading technology infrastructure can, therefore, prove financially prohibitive for smaller franchises, who instead continue to rely on manual processes and growing headcount to keep up with higher operational demands.

This can leave smaller GPs carrying a much higher per-dollar staffing burden than their larger peers, according to McKinsey. Smaller firms tend to employ between 22 and 30 people per US$1 billion of AUM, but firms with US$5 billion to US$10 billion employ only nine.

For middle market managers, the capacity dividend is the opportunity to deploy technology to bring down the costs of growing operational demands while freeing existing resources to focus on investors and fundraising.

How middle market managers can build operational capacity

The middle market model of hiring more staff to handle more data is simply becoming unsustainable, both from a cost and a reliability perspective.

Firm budgets can only accommodate increasing operations headcount to a point, but even if the higher headcount costs are feasible, increasing the number of people involved in data and reporting processes throws up other challenges, heightening the risk of data bottlenecks and manual errors.

Middle market firms with the best-performing operations and finance teams have acknowledged these constraints and are shifting to a new operational model that builds capacity without ramping up costs and headcount.

Technology sits at the center of the new model, and best-in-class middle market finance teams are deploying technology to automate repetitive and low-value work.

Operations teams that have made the transition to a technology-powered operating model, for example, are using technology to scan, review and extract data from portfolio company reporting packs and upload it to portfolio management systems, while process automation is streamlining workflows that would otherwise require multiple manual checks and approvals.

Agentic AI is taking this capability to another level again. Private markets software developer Allvue notes that AI agents have the capability to autonomously track, check and correct data in real time while maintaining complete audit trails.

This enhanced operational capability can improve the speed and quality of a firm’s output without having to bring in more staff to keep up with increasing operational complexity.

Better systems also make existing staff more effective, and free operational teams from spending time on monotonous tasks, like reconciliations, allowing them to add value to the core functions of fundraising and investor relationships.

Middle market GPs that can aggregate fund data in a single place and deliver investor reporting with greater speed and accuracy will gain a competitive edge over peers with similar investment track records.

In a recent LP survey, investors cited lack of access to analytics and disparate LP dashboards with multiple logins as the biggest bugbears with GP technology infrastructure. Firms that have invested in these areas, and can free up operational teams to focus on simplifying information access and transparency, will have more satisfied LPs.

The operational resources released as a result can also enable middle market firms to launch and run a wider variety of investment vehicles, separately managed accounts and co-investments – an increasingly important capability for unlocking capital from LPs that want to make larger allocations to middle market strategies, but often through alternative structures to 10-year closed-end funds.

Technology gives firms the headroom to improve the investor experience and ultimately pursue growth without having to expand operational teams at the same pace.

From technology investment to operational capacity

Building the data and technology capability to implement process automation and agentic AI, however, can be a daunting task for managers. In its 2026 GP Survey, MSCI found that 48% of respondents identified advanced data, technology and AI as the greatest capability gap.

Closing that gap is not simply a matter of buying more technology. Capacity is created when data, systems and workflows operate as a single model. Routine processes can then be standardized and automated, information can move consistently across funds and vehicles, and teams can absorb additional complexity without having to recreate the operating infrastructure each time.

For middle market managers, this changes the build-versus-partner calculation. The question is not whether every capability should sit in-house, but which activities are central to differentiation and which can be supported by a specialist operating partner.

A partner can provide the underlying data framework, technology and execution depth for functions such as fund administration and investor reporting. This allows the manager’s own teams to retain oversight while spending more time on investors, fundraising and product development.

Alter Domus supports this model by combining operational expertise with integrated data and technology infrastructure. The objective is not simply to process more work. It is to create an operating platform that can accommodate new reporting demands, additional vehicles and growth without costs increasing at the same rate.

As operational demands rise, managers that make this shift will have more than an efficient back office. They will have created capacity that can be reinvested in the areas that drive growth.

For years, middle market private markets managers have competed through disciplined investment decision-making, strong portfolio execution and consistent value creation. Those capabilities remain fundamental to success, but they are no longer enough in isolation.

The rules of competition are changing. As fundraising becomes more selective and LPs apply greater scrutiny to manager selection, investors are looking beyond historical performance toward organizational capability. Returns remain essential, but they are increasingly accompanied by a new question: does this manager have the operating maturity to steward investor capital throughout the full life of a fund?

For middle market managers that have earned their place in investor portfolios through consistent performance, the emergence of operational capability as another manager selection criterion represents a significant shift. Reporting, governance, operating discipline and investor experience are no longer viewed simply as support functions. They have become indicators of institutional quality and, increasingly, a source of competitive advantage.

Together, these capabilities form the operating model that enables managers to scale efficiently, meet investor expectations and support sustainable long-term growth.

This reflects more than higher operational expectations. In a market characterized by slower distributions, constrained liquidity and more selective capital allocation, institutional investors have greater opportunity to compare managers across every aspect of their business. An effective operating model has become an important indicator of how successfully a manager can manage complexity, respond to change and deliver a consistent experience throughout the life of a fund.

For CFOs and finance leaders, that represents an important shift. Decisions once viewed primarily through the lens of operational efficiency increasingly influence fundraising, investor confidence and a firm’s ability to scale.

Meeting these expectations requires investment in technology, data management, compliance, risk management and finance functions that are often easier for larger organizations to absorb because of their scale. Without the fee income or operational footprint of the industry’s largest platforms, many middle market managers face an important strategic question: how do they build institutional-quality operations while preserving the agility that has always differentiated them?

Importantly, many middle market managers have also demonstrated strong investment performance relative to larger peers. Yet today’s fundraising environment suggests that strong returns alone are no longer enough to differentiate a firm. Investors are increasingly looking beyond performance, assessing whether managers have the operational capabilities to deliver consistent execution, governance and long-term growth.

In this first article of a six-part series, Alter Domus explores why operational excellence is moving beyond the back office and becoming one of the defining competitive advantages in today’s private markets landscape.

The New Basis of Competition

The impact of rising expectations is already visible in today’s fundraising market.

Global fundraising exceeded US$260 billion during the first six months of 2026, putting the market on track to surpass the previous year’s annual total by 17%. However, only 310 funds reached a final close during the same period, meaning the number of successful fundraises is projected to fall significantly year on year.

Capital is concentrating in the hands of fewer managers. As competition for allocations intensifies, every aspect of a manager’s business is coming under greater scrutiny. That changes the basis of competition. In stronger fundraising markets, investment performance alone could often secure investor attention. Today’s environment is different. Operational capability is emerging as another factor that separates managers competing for the same pool of capital.

Performance dispersion remains an important contributor to fundraising concentration. However, investors are also placing greater emphasis on the confidence that comes from robust governance, transparent reporting and disciplined execution throughout the investment lifecycle.

Increasingly, investors view a manager’s operating model as an indicator of institutional capability. The ability to deliver consistent reporting, robust governance and timely insight provides confidence that a manager can deploy capital effectively, navigate complexity and steward investor capital throughout the life of a fund.

For established middle market managers, the implication is clear. Competing successfully for capital increasingly depends on more than a differentiated investment strategy. Investors want confidence not only in how capital will be invested, but also in how it will be governed, reported and managed over the life of the fund.

For CFOs, this means the finance function is becoming a strategic enabler of growth rather than simply a steward of financial control. Increasingly, the strength of the operating model influences not only operational performance, but investor confidence and fundraising success.

Operational excellence has therefore moved beyond the back office. It is becoming a defining characteristic of institutional-quality managers and an increasingly important source of competitive advantage in today’s fundraising environment.

Becoming Institutional Without Becoming Bureaucratic

The question facing middle market managers is no longer whether they need institutional-quality operations. Increasingly, they do. The challenge is how to build them without sacrificing the agility that has long been their competitive advantage.

For CFOs and finance leaders, that increasingly means making operating decisions that support not only operational efficiency, but future fundraising, investor confidence and long-term growth.

The good news is that building institutional-quality operations does not necessarily require building every capability in-house. By partnering with a trusted fund administration provider, managers can access institutional-quality operating infrastructure without making disproportionate investments in technology, reporting, compliance and operational teams.

Working with a specialist partner gives middle market managers access to operating capabilities that are already running at scale. Rather than recreating institutional infrastructure internally, managers can leverage proven operating models that have evolved alongside some of the world’s most sophisticated private markets firms. These include experienced private markets professionals, technology platforms, investor reporting, regulatory and compliance expertise, and global delivery models designed to support increasingly sophisticated investor requirements.

Rather than continually expanding internal teams or investing in multiple technology platforms, managers can leverage an established operating model that scales alongside their business. This enables firms to retain lean operating teams while benefiting from institutional-quality governance, reporting and operational processes.

The result is greater flexibility. Internal resources remain focused on the areas that create the greatest value—including investment execution, portfolio oversight, liquidity management and investor relationships—while core operational activities are supported by scalable infrastructure that evolves alongside the business.

Building Institutional Capability

For middle market managers, there is no single blueprint for building institutional-quality operations. Each firm brings its own investment strategy, operating model, investor expectations and growth ambitions — and the operational infrastructure supporting them should reflect that reality.

Avoid a one-size-fits-all approach

Applying a standardised operating model rarely accounts for the nuances of a firm’s strategy or structure. The more effective approach is to build operational capabilities that are specifically aligned to how a firm operates and where it is heading.

Plan for operational evolution

As firms grow, investor expectations tend to become more sophisticated and operational complexity increases. Fund accounting, investor reporting, governance, compliance and data management requirements all evolve with scale — and the infrastructure supporting them should be designed to keep pace, rather than adapted reactively.

Preserve agility while building institutional credibility

One of the defining characteristics of successful middle market managers is their ability to move quickly and remain close to their investments. Operational build-out should strengthen investor confidence without introducing the rigidity that can slow decision-making or limit flexibility.

Align operational capability to long-term growth objectives

Operational foundations are most effective when they are built with a firm’s long-term trajectory in mind. Scalable operating models allow investment teams to remain focused on performance and value creation, rather than being pulled into operational challenges as the business grows.

Conclusion

Middle market managers have long differentiated themselves through investment expertise, entrepreneurial thinking and the ability to respond quickly to changing market conditions. Those strengths remain fundamental to long-term success.

Increasingly, however, investors are evaluating more than investment capability alone. They are looking for confidence that managers can deliver consistent reporting, robust governance and an operating model capable of supporting long-term growth.

Much of this evolution is being led by finance teams. As operational expectations increase, CFOs are taking a broader role in shaping technology investment, operating models and investor reporting.

Operational excellence is therefore no longer simply about running a more efficient back office. It has become part of how managers demonstrate institutional capability to existing and prospective investors. It is about creating the institutional capability that inspires investor confidence, supports sustainable growth and strengthens a manager’s ability to compete in an increasingly selective fundraising environment.

For middle market managers, the firms that combine investment excellence with institutional-quality operations will be best positioned to win capital, deepen investor relationships and sustain growth over the long term.