By McAllister (Mac) Kirschner, Chief Operating Officer, MUFG Investor Services

This article was originally posted in Hedgeweek.

As alternative asset managers scale and diversify to achieve new growth, operational complexity often moves faster than in-house teams can keep up. Talent gaps, increasing costs, outdated legacy systems, and fragmented processes will hinder an asset manager’s ability to raise capital and introduce new products to improve returns for investors.

At that point, operational outsourcing is more than an efficiency play—it becomes a strategic imperative.

We’re seeing this shift frequently, and one of the most effective—and sometimes challenging—forms of outsourcing is the lift-out: A “go-to” strategy that allows managers to transition staff, functions, systems, and technology to an outsourcing partner without losing institutional knowledge or continuity.

That can mean moving a single task, a small team, or absorbing an entire department. When executed effectively, lift-outs can significantly help to optimize performance, improve efficiency, and create next-gen operating models to help them grow assets and remain competitive.

From Fragmented to Future-Ready: A Real-World Lift-Out

Consider our collaboration with one global alternative asset manager. Although widely recognized in the industry, the firm was struggling with high turnover in their middle and back offices, manual workflows, and outdated technology. What began as a short-term staffing solution—sending our employees across the U.S. to support their team—evolved into an expansive, multi-year engagement that transformed the firm’s operating model.

We ultimately hired and redeployed 30 to 40 people, onboarded key members of their internal team, and lifted out whole core functions onto our systems. We assumed responsibility for data management within the client’s order management system (OMS), trade settlements, corporate actions, portfolio administration, and performance reporting.

One of the most impactful changes was creating a golden source of data. By centralizing and validating trading information, we corrected reporting exceptions quickly, eliminated delays, and delivered measurable cost savings. With a modern, scalable model in place, the firm increased AUM from $50 billion to more than $183 billion.

Why Managers Pursue Lift-Outs

MUFG Investor Services has led internal and external lift-outs for more than a decade. While each one is unique, the motivations are often the same. Managers want to retain continuity with trusted teams, and gain access to automation and modern platforms.

Lift-outs also offer a way to preserve institutional knowledge while replacing inefficient processes. Compared to full outsourcing transitions, they can provide more stability, especially for firms facing rapid growth or internal change.

But lift-outs come with challenges. Managers are frequently hesitant to give up control or implement new processes. Teams often worry about job security, new reporting lines, or changes in compensation.

For service providers, success depends on whether the transition can be efficiently integrated and scaled for long-term value.

Our Approach: Strategically Built for Alternatives

Our playbook doesn’t begin with suggestions for a lift-out. Instead, we have conversations about what’s working, what’s not, and what’s possible.

Our teams analyze the client’s current operating model to identify inefficiencies, skill and technology gaps, third-party vendor agreements, and opportunities to automate. In many cases, we help clients enhance their operating models without a lift-out.

When a lift-out makes sense, we take a structured approach. We assess a manager’s management hierarchy, workforce skills, functions, and technology stack to determine compatibility with our model. We evaluate where our systems and automation can add value, and we ensure that the model will work economically for both firms.

For example, we recently assisted a manager that needed a complete middle-office lift-out to support its transition to T+1. Our solution enabled daily reconciliation of cash, positions, and trades. It also included automated trade status updates and exception resolution workflows. The result? A 30 percent improvement in reconciliation speed and an 18 percent reduction in headcount costs.

With another business line of the same client, we deployed a shadow accounting solution and embedded experts within their systems to manage books and records, respond to investor requests, support audits, and deliver accurate management reporting. This approach proved so effective that we’re working with additional business lines within the organization.

The key is tailoring the solution to the client’s long-term strategy and growth goals.

Success Begins with Integration

Every lift-out has its own playbook, and the most successful lift-outs begin with effective integration. Our teams, including Relationship Management, Client Solutions, and Client Integration, along with Product specialists, stay in constant dialogue with clients to confirm technology and software efficiently interact.

We focus heavily on communication. Our HR and leadership teams conduct frequent site visits, town halls, and one-on-one meetings with transitioning employees to build trust and connection. We want new colleagues to feel supported, not just reassigned. That means clarifying roles, outlining reporting structures, addressing compensation questions, and ensuring continuity.

In some cases, transferring employees feel conflicted about reporting lines, particularly if they remain onsite with their original firm. It’s our job to bring structure and reassurance.

Culture Is Critical

What defines a successful lift-out isn’t just execution, it’s integrating new colleagues into a culture where they can thrive.

Our culture is collaborative and client centric. We tap senior leaders to assist with transitions, encourage new employees to share their views, set clear expectations, and provide career path visibility. New team members aren’t stepping from an asset manager or hedge fund into a fund administrator. They’re entering an organization that spans asset servicing, business process outsourcing, banking, treasury services, custody, fund finance, FX, securities lending, and more—creating opportunities far beyond the middle or back office.

We take pride in helping people grow within our firm. And we believe that investing in people is the best way to ensure long-term client success. As one of my colleagues says, “You can’t hire or buy culture. You must instill it from within.”

The Bottom Line

Lift-outs aren’t a fit for every manager. But for alternative asset managers facing rising costs, operational pressure, and system inefficiencies for new products, lift-outs can be transformational when executed with care, rigor, and experience. MUFG Investor Services has spent the last decade refining that process. We don’t just transition operational models. We help clients build better ones.