Unlocking the Future: Why Outsourcing's Popularity Keeps Soaring

By Stephanie Henwood-Darts

It's been well documented that the demand for outsourced fund administration services by private fund managers is on the rise. What has been less documented is why. The most frequently cited reasons are:

1. Cost efficiency and reduction

2. LP pressure

3. Recruitment difficulties

4. Access to specialized technology platforms

5. Meeting increased regulatory demands and compliance costs

Cost Efficiency

Cost efficiency is a significant factor in the decision to outsource to a third-party fund administrator. Partnering with external fund administration firms offers economies of scale that can significantly reduce administrative costs, including salaries, benefits, and training. This allows asset managers to allocate resources towards more strategic investments and growth initiatives, ultimately increasing profitability and operational efficiency. Furthermore, fund administration fees can be classified as a fund expense, further easing the financial burden on fund managers.

LP Pressure

Limited partners (LPs) are increasingly demanding greater transparency and efficiency from their fund managers, as well as emphasizing the importance of independence. External fund administrators are equipped to provide detailed and timely investor reporting that satisfies these stringent requirements, strengthening investor relations and building trust in the fund's accounting operations.

Recruitment Difficulties

Recruiting and retaining skilled professionals has become a significant challenge for private fund managers. Outsourcing fund administration solutions can alleviate this issue by providing access to a team of experienced professionals who specialize in fund servicing. This outsourced administration removes the burden of recruitment and training, ensuring that alternative funds benefit from expert support without facing hiring challenges.

Access to Technology

The ever-evolving landscape of technology presents both opportunities and challenges for fund managers. By outsourcing to a fund administrator, managers can access state-of-the-art technology and systems for data integration, portfolio analytics, and investor onboarding without substantial capital investment. The biggest fund administrators invest heavily in the latest tools for data management, reporting, treasury processing and compliance, providing managers with advanced solutions that may be too expensive to implement internally.

Meeting Increased Regulatory Demands

Navigating the complex regulatory landscape has become increasingly challenging for fund managers. To meet these regulatory requirements effectively and manage rising compliance costs, more managers are turning to outsourced fund administration. These providers have the necessary expertise and resources to handle all current and upcoming regulations and compliance standards.

Conclusion

The rising popularity of third-party fund administration outsourcing among private funds is driven by a combination of cost reduction, LP pressure, recruitment challenges, access to specialized software, and increasing regulatory requirements. By partnering with fund administration firms, asset managers can reduce administrative burdens, improve scalability, and focus on their core competencies. As the alternative fund industry continues to evolve, outsourcing to experienced fund administrators will be key to unlocking future growth and success. Contact us to learn more!