Outsourced models are well ingrained within the private capital fund industry, in part because fund structures are often domiciled within a different jurisdiction (e.g. Channel Islands, Luxembourg) to the core finance function of the fund manager (e.g. UK).
We have also seen that outsourcing has been used as a tool within the industry to enhance performance by improving operational efficiency, managing risk and reducing cost.
Historically, more material adjustments to existing outsourcing arrangements and the use of third-party service providers have correlated with market downturns as inflexion points. For example, following the Global Financial Crisis it has now become uncommon for fund managers and GPs to replicate the fund accounting maintained by their fund administrator for reconciliation purposes.
Flash forward to today, following an extended period of challenging fundraising conditions (noting a contraction of 22% in global private capital fundraising in 2023[1]), a high degree of fundraising concentration to the biggest managers and general deal inactivity, fund managers and GPs are once again more actively undertaking operating model reviews in order to enhance performance.
There are also supply-side factors with the emergence of alternative service providers with market differentiating features. This includes fund administrators that have more highly tailored service models and optimised technology or specialist software providers and consultants seeking to solve specific challenges through automation and Artificial Intelligence (AI).
Market perceptions have also shifted, whereby it’s more commonplace for fund managers and GPs to transfer existing fund administration mandates to new providers when faced with an opportunity to improve client service levels and reduce cost. With the right process and governance in place, it is a much easier process to transfer existing structures and services to a new provider and can be beneficial to consider such a transition sooner than later.
As a next generation fund administrator, Belasko has developed a programme that supports fund managers and GPs through an operating model review. Our fund administration solutions are precise, tailored and designed for performance.
If this would be of interest to discuss further, please do get in contact with Nick McHardy, our Group Head of Funds at [email protected].
And finally, stay tuned for our next article where we’ll explore the value drivers that managers and GPs may want to consider when embarking on their operating model reviews.
[1] Source: Preqin.
