Unlocking the Future: How Co-Sourcing Can Offer a Best-of-Both-Worlds Approach to Fund Administration
Stephanie Henwood-Darts
Traditionally, private fund managers have faced a binary choice in fund administration: keeping operations in-house or fully outsourcing them. Recently, however, a hybrid approach known as co-sourcing has gained popularity, reshaping how firms manage their operations. Co-sourcing blends the autonomy of in-house control with the expertise of third-party providers, offering a flexible solution for today’s evolving challenges.
What is Co-Sourcing?
At its core, co-sourcing allows private fund managers to maintain control over their proprietary data, systems, and processes while strategically leveraging the deep expertise of external fund administration professionals. This collaborative model seamlessly integrates external resources into a firm’s operations, enhancing efficiency and scalability without sacrificing control.
Why Co-Sourcing is Gaining Momentum
Several factors are driving the rise of co-sourcing:
Increasing Complexity & Regulation: As the private fund landscape grows more complex, so do the regulatory demands. Co-sourcing helps firms manage these complexities while ensuring compliance with evolving regulatory standards.
Investor Expectations for Real-Time Data: Investors now expect real-time access to data and faster responses to reporting requests. Co-sourcing enables fund managers to provide instant access to data while benefiting from the speed and expertise of external administrators.
Talent Shortages and Operational Strain: A shortage of skilled fund administration professionals has put pressure on in-house teams. Co-sourcing alleviates this by providing access to experienced professionals, helping firms scale operations without overstretching internal resources.
The Benefits of Co-Sourcing
Co-sourcing offers numerous advantages for private fund managers, including:
Data Control: Firms retain ownership and control over their proprietary data, eliminating the need for shadow accounting and reducing risks associated with data migrations.
Operational Flexibility: Co-sourcing allows firms to scale resources in line with project demands and growth plans, particularly when entering new markets or launching additional funds.
Enhanced Cybersecurity: By keeping data centralized within the firm’s infrastructure, co-sourcing reduces exposure to cyber threats related to data transfers, strengthening overall cybersecurity.
Specialized Expertise: Co-sourcing provides firms with access to top-tier expertise in fund accounting, compliance, risk management, and technology, helping firms stay ahead of industry trends and challenges.
Improved Reporting and Investor Relations: The co-sourcing model streamlines financial and investor reporting, enhancing communication channels and fostering greater transparency, which helps build long-term trust with investors.
How to Navigate the Co-Sourcing Journey
While the benefits of co-sourcing are clear, it requires thoughtful planning and execution to succeed. Here are key steps to guide the transition:
Assess Readiness: Firms should first evaluate their internal systems, processes, and operational maturity to determine if they are ready for co-sourcing and identify what type of partner will best complement their needs.
Select the Right Partner: The success of co-sourcing depends on choosing a partner that understands your needs, has experience with the chosen technology platform, and can offer the appropriate hands-on guidance, especially if you are new to co-sourcing.
Foster a Strong Partnership: Co-sourcing works best when there is a strong, collaborative relationship between the firm and the co-sourcing provider, built on shared goals and open communication.
The Future of Fund Administration
While outsourcing remains the most popular option for VC and PE funds, co-sourcing provides another option that combines the best of both worlds: the control of in-house operations and the expertise of third-party providers. By embracing this model, fund managers can navigate increasing complexity, strengthen investor relationships, and unlock new opportunities for growth and success. Contact us to learn more about how we can support your transition to co-sourcing.