Co-sourcing, lift-outs help fund managers thrive amid change

Business as usual may have a nice ring to it, but for alternative investment fund managers, there’s really no such thing as “usual.”

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The market’s always in flux, regulatory requirements can seem like moving targets, and investor demands for more information, more transparency, and more timely reporting can stress even the best in-house staff and systems. And that’s not even to mention the effect growth, spin-offs, mergers, and acquisitions have on daily operations.

Trying to keep up with it all can drain resources and shift the focus away from strategy and returns, which is why so many fund managers are outsourcing administrative responsibilities to reduce day-to-day burdens.

Yet even outsourcing is evolving. Long gone are the days of task-oriented, commoditized relationships with multiple providers, each furnishing different ancillary services. They’ve been replaced by deep partnerships with asset class specialists — experts who can provide all the jurisdictional, operational, and systems support a fund manager needs across the globe.

And while that’s a highly successful model, still another concept is emerging, driven by the need for real-time data. It’s called co-sourcing, and it’s a hybrid way for fund managers and administrators to work together.

Co-sourcing ensures data control

Co-sourcing exists at the intersection of insourcing and outsourcing. Under the co-sourcing model, the administrator handles the day-to-day back- and middle-office operational activities while the fund manager retains ownership and control of their in-house technology and data solutions. That reduces the back-and-forth of information between the administrator and fund manager, meaning the fund manager can access the data in real time to speed decision-making and respond more quickly to investor requests. The administrator can also retrieve the information required to perform stakeholder management functions, but data confidentiality, integrity, and security remain firmly in the hands of the fund manager.

Lift-outs: Lower expenses, same trusted talent

As fund managers grow their investment franchises, meeting data demands can become increasingly challenging, to the point where it takes nearly continuous reinvestment in technology and in-house operations just to stay even. But making non-stop capital expenditures isn’t always feasible or attractive, and neither is shouldering rising human resource costs.  

As an alternative, some administrators will conduct a “lift-out” of the fund manager’s operational teams, making them their own employees. Although the staff now fall under the administrator’s overhead, they remain completely dedicated to the fund and its activities. In other words, there’s no loss of talent or attention, but the cost center changes, and the fund manager is freed from the complexity of managing a back or middle office.

Staying a step ahead

Choosing the right fund administrator is a decision no one takes lightly; there’s just too much at stake. But ultimately, a good administrator will provide white-glove service; add value to the portfolio, risk management, and investor teams; and constantly upgrade their technology.

Most of all, they’ll be innovators who know how to stay ahead of the market and the industry, making the concept of “business as usual” not so unusual in the end.

This article was originally published in Funds Europe’s Private Markets Fund Admin Report.

Learn more about Alter Domus’ Strategic Co-Sourcing and Outsourcing services.


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