This article was originally published in The Alternative Investor. Access the full November edition of The Alternative Investor by clicking here.

By Daniel Trentacosta, Managing Director and Head of Private Markets & Change at MUFG Investor Services

Engaging a new generation of investors bringing trillions of dollars in fresh capital.

Pursuing exceptional fund performance and client service.

Honing a competitive edge to fuel new growth, achieve greater returns, and shape the future.

Those are just a few reasons for the growing relationships between fund managers in the private markets and their trusted service providers. Private markets, once almost exclusively the domain of institutional investors, are transforming rapidly. Now, high-net-worth retail investors are entering the marketplace alongside institutional investors, bringing with them new demands for service and performance. Add to that the continued evolution of regulatory disclosure and transparency requirements across global jurisdictions, and it’s clear that “change” has become the one constant in the private markets.

Much of that change is being driven by the growing role of outsourcing. Throughout most of the past decade, outsourcing providers were seen primarily as fund administrators responsible for back- or middle-office functions, including accounting, NAV calculations, basic regulatory reporting, internal controls, and compliance. Now, the strongest service providers have grown into trusted strategic partners that can quickly provide a diverse offering of solutions across the entire value chain.

The need for that support is clear and immediate: In September, Preqin estimated in its Future of Alternatives 2029 report that assets under management (AUM) in the global alternatives ecosystem will reach $29.2 trillion in 2029, an increase from $16.8 trillion in 2023. Private equity, the largest private capital asset class, is expected to grow to $12 trillion AUM in 2029, up from $5.8 trillion in 2023, with a 12.8% annualized growth rate.

As private markets expand, fund structures grow more complex and investor demands accelerate, alternative investment managers will be tapping their trusted partners regularly for tailored products and services, automated platforms, and experienced teams to become more cost effective and improve efficiency. All of that work is designed to ensure that fund managers have the ability to streamline operations and deliver greater value for their investors.

Building Relationships: Expertise, Experience and Flexibility

Trust is the foundation of the relationship between alternative investment managers and their outsourcing partners. For example, MUFG Investor Services’ client-centric model emphasizes close interaction, listening to client needs, and understanding businesses to develop collaborative, long-term partnerships. Fund managers, often with limited resources, recognize that we already have invested time and money to build and implement secure new processes and systems to eliminate legacy technology. And we have new platforms in place to continually monitor global regulations and ensure compliance.

By taking a holistic approach, MUFG Investor Services expanded our role to deliver superior back- and middle-office solutions, as well as foreign exchange, banking and payments, and fund financing. As outsourcing increases, fund managers also are embracing the concept of co-sourcing, where our teams provide specialized service and work with a client’s team or technology, as well as lift-outs. All these tools help managers to leverage expertise while maintaining control over critical functions. 

Innovating with Technology

To best accommodate the significant growth of the private markets and volumes of new data, fund managers are moving away from outdated, legacy systems to innovative, automated systems. This new technology, often provided by trusted partners, enables managers to cleanse, validate and store data in secure repositories that can be used for investor services, portfolio valuation, hedging needs, data analytics, reporting requirements across jurisdictions, and much more.

By outsourcing to trusted partners, fund managers can access cutting-edge technology without the burden of ownership, allowing them to focus on maximizing operational efficiency while minimizing vendor exposure. Trusted partners provide teams of experienced professionals across fund structures who are well-versed in managing client systems, integrating with clients’ existing tools, and implementing new technology for tasks including complex calculations of investor allocations and fees, to reconciliations. Partners often are required to provide individual, custom solutions specifically for a fund’s needs.

Ensuring validated data is critical for investor and regulatory reporting, as fund managers must be confident about accuracy when submitting filings. Without clean data and automated platforms, funds with a range of strategies may have a difficult time meeting regulatory and compliance rules. Often, these requirements are not harmonized and jurisdictions have varying submission formats that are strictly enforced.

Outsourcing also enables alternative investment managers to be selective in choosing when and where to upgrade systems to address increased regulation and pricing competition. By using platforms that have been developed and tested by trusted partners, managers can avoid being tempted to deploy more technology than they need and focus on where technology will add value.

Moving into the Future

As private markets continue to expand, the relationship between fund managers and trusted partners will become more integrated through client service and technology. Private markets funds cannot operate in isolation—those days are over. We believe that the most successful funds will be those working with forward-thinking partners to develop new operating models that will rely on the strength and flexibility that outsourcing provides and enable fund managers to focus on what has always been the primary goal: Serving their clients by increasing returns and achieving new growth.