Key Takeaways
- Successful operating models keep pace with growth and complexity. New products, new products, investor demands, legacy systems, and talent constraints can expose gaps in existing operations.
- Outsourcing is increasingly a strategic decision. Alternative asset managers are looking beyond cost reduction to determine whether internal resources are focused on the capabilities that create the most value.
- The right outsourcing model is specific to each firm. Options range from outsourcing individual processes and services to broader lift-outs involving functions, systems, workflows, and employees.
- Strong operating partnerships are built for scalability and evolution. Firms should evaluate potential providers based on factors including expertise, capabilities, and flexibility to support business priorities.
As alternative asset managers continue to launch complex products and expand into new markets, some find that their existing operating models do not efficiently support rapid growth or evolution. These firms may find themselves considering a fundamental question: Which operating capabilities should remain in-house, and which are better delivered by a service provider?
Historically, the decision to outsource was often viewed as a trade-off between control and efficiency. Managers may have retained functions internally to preserve oversight and institutional knowledge, while outsourcing was primarily associated with cost reduction and administrative support. However, managers today are looking beyond whether a function can be performed internally and considering whether doing so is the best use of resources.
This shift is leading firms to reconsider how their operating models align resources with strategic priorities. Upgrading a firm’s outsourcing approach may support improved data quality and more consistent reporting. It may also reduce the manual work involved in reconciling books and records. With less time spent managing day-to-day processes, internal teams are freed up to focus greater attention on product development and investor needs.
Several factors are prompting managers to consider whether their current operating model supports their future business goals. For example, operational complexity continues to rise as firms embrace strategies that require more sophisticated accounting and investor servicing. At the same time, legacy systems and manual processes often struggle to support the speed and transparency investors demand. Talent constraints and rising operating costs can add to the pressure.
Outsourcing Options
Reassessing a firm’s operating model does not automatically imply that every function should be moved to an outside provider. Some firms outsource a defined process, such as fund accounting or investor reporting. Others use a broader model including lift-outs, in which employees and workflows may transition with the services. Regardless of the approach, the objective is to preserve the appropriate level of control while leveraging an operating partner’s expertise and solutions.
Our Business Process Outsourcing team has firsthand experience delivering results through custom-fit delivery models. For example, we partnered with a $70B+ alternative asset manager who needed a shadow ledger system with support for daily T+1 NAV calculations and reconciliations across a diverse portfolio. The manager ruled out internal development as the investment portfolio spanned 120 hedge funds and fund of funds. Our specialists spent one year onsite, implementing a middle-office lift out that ultimately resulted in 30% faster reconciliations and an 18% reduction in headcount costs.
Identifying the Custom Fit
Lift-outs can be an effective option for managers looking to modernize operations without losing continuity. Rather than rebuilding processes from the ground up, this approach transfers defined functions, systems, and technology, and in some cases the employees performing them, to an operating partner. Workflows may transition over time, allowing the firm to preserve institutional knowledge while changing how the function is supported.
A lift-out is not the best solution for every firm. The first step is understanding where the firm’s existing operating model may be creating friction and whether those challenges can be addressed such as through targeted processes or resourcing changes. Where a lift-out makes sense, a structured approach helps preserve business continuity while focusing on long-term growth.
When evaluating the right balance of internal capabilities and external support, firms should assess operating partners based on expertise and execution discipline as well as their ability to support future priorities. Ultimately, the strongest operational partnerships evolve with the business, creating a foundation for long-term success.
