Daniel Trentacosta, Managing Director, Global Head of Private Markets and Change

This article was featured in Private Equity Wire.

As institutional investors recalibrate their allocation strategies in response to prolonged distribution challenges, private equity managers face a new reality: operational sophistication has risen to a critical factor in securing Limited Partner (LP) commitments. While track records will always remain the primary lens through which investors assess managers, today’s environment increasingly demands that operational excellence stand alongside performance history as a prerequisite for earning a seat at the table.

The Numbers Behind the Shift

According to industry data, fundraising for traditional commingled vehicles was down approximately 24% in 2024, marking the third consecutive year of decline. In McKinsey’s LP survey, 2.5 times as many limited partners now rank distributions to paid-in capital (DPI) among their top performance metrics compared with three years ago. At the same time, LPs are increasingly demanding deeper transparency, more timely reporting, and enhanced data infrastructure from general partners. Within a landscape of thousands of funds vying for more selective LP allocations, strong deal sourcing alone is not enough. Operational infrastructure has become just as critical as deal flow. The question facing managers is no longer whether to build institutional-grade capabilities, but how quickly they can deploy them.

The Complexity Reality

For large, multi-jurisdictional managers overseeing $20 billion or more in assets, operational demands now rival deal complexity. A single flagship fund might include parallel entities across tax regimes, co-investment sleeves with custom fee structures, and bespoke separately managed accounts. Multiply this across multiple concurrent funds, and the operational architecture can encompass dozens of legal entities and thousands of investor positions.

The Institutional Limited Partners Association (ILPA) recently redefined their quarterly reporting standards after input from more than 100 stakeholder groups. That move signals that sophisticated operations are no longer a differentiator. They are table stakes. Yet many managers still rely on lean teams and manual processes that strain under pressure when there are market or geopolitical events that impact valuations, liquidity events for semi liquid funds, or rapid turnaround on LP data requests. Leading firms have recognized that building this infrastructure in-house requires years and significant capital investment. Outsourcing to specialists who have already built institutional-grade platforms enables managers to compress that timeline while reducing execution risk.

What LPs Actually Want

Modern LPs expect timely, standardized, and reconciled reporting that aligns with ILPA guidelines. The days of quarterly PDFs and static spreadsheets are over. They want absolute clarity on capital calls, distributions, management fees, expense allocations, carried interest, and allocation details with calculations they can verify and trust. Fee transparency and specifically fees paid to the managers for other expenses now rank alongside performance in determining whether they commit capital.

Without specialized infrastructure, ensuring data integrity, meeting regulatory obligations, and producing investor-ready reports at scale is nearly impossible. The differentiator increasingly lies in how quickly managers can deploy the scale, jurisdictional expertise, and technology needed to tailor workflows and reporting without creating bottlenecks. For most firms, this means partnering with specialists who have spent decades building these capabilities.

Onboarding as an Operational Test

Onboarding has become a litmus test for operational sophistication. LPs now expect an automated, low-friction process that centralizes compliance and tax documentation, eliminates repetitive data entry, digitize subscription documents with e-signatures and accommodates multiple jurisdictions in a single workflow. The firm’s winning mandates have moved beyond manual processes to fully digital onboarding infrastructure. Many have achieved this by partnering with specialized providers rather than building proprietary systems that require ongoing maintenance and updates.

Technology as the Backbone of Trust

For large private equity managers, technology has become the decisive lever for earning and sustaining investor trust. Nowhere is this more evident than in fee calculations, where the complexity of parallel entities, co-investment sleeves, and bespoke accounts demands absolute precision. A single miscalculation in management fee allocation across tiered structures can erode LP trust faster than a quarter of underperformance.

Automated platforms that standardize, reconcile, and validate fee structures across jurisdictions eliminate errors, accelerate reporting cycles, and ensure alignment with evolving ILPA guidelines. In today’s environment, where transparency and accuracy rival performance in determining allocations, technology-driven infrastructure is a prerequisite for firms seeking to turn operational complexity into lasting competitive advantage. The most sophisticated managers recognize that accessing world-class technology platforms and the expertise to operate them at scale often requires specialist partners who can deliver both.

Market Forces Accelerating Change

With buyout distributions hovering near decade lows, LPs are treating operational metrics as leading indicators of manager quality. A manager’s ability to provide real-time portfolio visibility and accurate cash flow forecasting has become as important as IRR projections. Surveys show that 40% of LPs cite operational failures as a primary reason for not increasing capital commitments with a manager, regardless of investment performance. Rather than spending years building proprietary infrastructure, leading managers have increasingly turned to outsourcing as a strategic lever, gaining immediate access to proven processes and global platforms while focusing internal resources on investment activities.

Regulation as a Strategic Opening

Evolving regulation is another accelerant. Potential changes to accredited investor definitions and proposals expanding private asset access through defined contribution retirement plans are introducing entirely new investor classes, potentially adding millions of investors to the private markets’ ecosystem. These will require enhanced KYC protocols, more sophisticated suitability assessments, and scalable reporting architectures.

Forward-thinking managers are building modular compliance frameworks that can adapt to new requirements without costly overhauls. Specialized service providers offer frameworks that have been stress-tested across hundreds of fund structures and can adapt to regulatory changes without requiring costly system rebuilds.

The Financial Impact

The connection between operational readiness and investment returns is direct and measurable. Research indicates that comprehensive exit preparation, covering data accuracy, regulatory compliance, and seamless reporting, lead to higher asset valuations. Operational precision can translate into enhanced value at exit.

What was once a back-office function has become a center of competitive advantage. Managers now use operational capabilities to enhance investor confidence, accelerate decision-making, and strengthen both fundraising and portfolio performance. Sustaining this level of excellence requires both deep specialized expertise and tested infrastructure. Most managers find that building these capabilities internally diverts resources from their core competency of generating returns.

The Path Forward

The next phase of private equity will be defined by firms that combine world-class deal execution with operational infrastructure built for agility, accuracy, and transparency. Technologies such as enhanced reporting, analytics, and timely data validation are fast becoming baseline expectations. LPs now expect to access their capital account information, and pertinent documents through secure portals, on demand, rather than waiting for quarterly packets.

In this environment, trust is as valuable as performance. For many managers, the path forward will be defined by their willingness to partner strategically rather than build everything internally. The world’s largest and most respected funds have increasingly embraced a model where specialists convert operational complexity into competitive advantage through purpose-built scale, technology, and jurisdictional expertise. In an industry where LP confidence determines capital flows, operational readiness is no longer optional. It has become the foundation upon which trust, and ultimately performance, is built.