By Neil Synnott, Chief Commercial Officer, Asia
As fund managers scale across jurisdictions and grapple with complex asset classes, we’re witnessing a real shift in how they structure their operations. Firms are fundamentally rethinking their approach, balancing insourcing, outsourcing and hybrid models to build an operational blueprint that fits their specific needs.
Here, using key insights from our recent CFO survey report, we explore the strategies CFOs are deploying to improve operational efficiency while navigating today’s tough macroeconomic environment.
Outsourcing as an enabler of scale and efficiency
Outsourcing is climbing in popularity, particularly among growing firms. According to our global survey, 38% of CFOs have increased outsourcing due to growth in the last 12 months, and with good reason: two-thirds of respondents overall (66%) agree that outsourcing non-core functions has enhanced their operational efficiency and focus.
It’s really no surprise to see outsourcing gaining momentum in the context of increasing investor demands and rapidly evolving use of technology. Elise Gray, our Head of CFO Support Services in the U.S., summed up the situation well in her comment: “Outsourcing frees up fund managers’ time to concentrate on their core competencies of generating returns for their investors. It also ensures they can stay ahead of industry demands without shouldering the full operational burden.”
The need for improved oversight is also a recurring theme. While there’s been a rise in larger managers insourcing their alternative investment fund manager (AIFM) function, this has still led to reliance on external, specialist partners. Justin Partington, Global Head of Fund and Asset Managers, noted the fact that our clients are increasingly requesting dedicated teams to oversee the work they do and manage all third-party providers. “This level of oversight used to be painful,” he comments. “However, as technology improves – especially with real-time KPI dashboards and visible workflows – clients now have a window into the work being done. It’s creating a more transparent and collaborative environment.”
In a similar vein, some firms are attempting to bring traditionally outsourced activities like anti-money laundering and know-your-customer due diligence (AML/KYC) back in-house. However, while this move may be appealing on paper, it can prove difficult in practice. “Reabsorbing complex compliance tasks into internal teams can be easier said than done,” comments Justin. “That’s why we’re seeing many CFOs turn to technology for support – automating where possible, and creating seamless integration between internal and external teams.”
Hybrid models: blending flexibility with control
Our survey data also shows that CFOs are moving away from the idea that there are only two binary options: in-house or outsourced. This is giving way to a hybrid approach, combining both internal and external teams to optimise operations. This model allows firms to maintain control over core functions, while outsourcing burdensome or non-essential tasks – or those requiring specific expertise – elsewhere.
The survey reveals that 20% of CFOs surveyed have adopted hybrid outsourcing models in the past 12 months, with a smaller 6% pursuing full team lift-outs. A lift-out is the process of transferring an entire operational team from one organisation to another, combining the benefits of in-house knowledge and experience with outsourcing efficiency.
It’s worth flagging that the percentage of CFOs pursuing lift-outs according to our survey seems low in comparison to what we’re witnessing first-hand in the industry. As Tamas Mark, our Global Head of Real Assets, observes: “We’re seeing a strong interest in full team lift-outs – it’s all about making sure that clients can build a really sizeable and scalable back office, without disrupting service continuity. Many investors prefer this route because it can help preserve valuable data, technology and knowledge.”
While a more drastic transition than a hybrid approach, lift-outs can offer firms the flexibility they need while they scale. Justin adds, “We’ve also had clients take over entire teams and integrate them into their operations, while they remain our employees. This is a really flexible model that gives clients dedicated resources without taking on the full employment risk.”
Hybrid models can take many forms and achieve different business outcomes. In Europe, one of our success stories has been a staff secondment, where we embedded some of our IQ-EQ employees into client offices, rather than pursuing a full team lift-out. “They work a few days a week on-site but remain under our employ and on our payroll,” shares Justin. “This is a great way to provide continuity and cultural integration, while clients still benefit from external expertise and the ‘outsider’ point of view.”
Here in the Asia-Pacific (APAC) region, meanwhile, the data shows that hybrid models are being driven by larger GPs seeking smarter cost distribution and compliance with LP expectations. In this region, we’re seeing more and more GPs adopt hybrid models as part of their mission statements to LPs. It’s about delivering ROI and moving certain operational costs off the management company’s books and onto the fund. In practice, this means a lot of administration work is passed to outsourced providers, while strategic oversight remains in-house.
The hybrid approach is proving particularly successful across jurisdictions where fund strategies vary widely. The model works best when it’s engineered from the start with the right regulatory and operational frameworks – especially in APAC, where there is such diversity in how funds are structured and regulated.
Adapting to the challenges of today
Across private markets, operational models are being rebuilt to adapt to today’s volatile landscape and the diversity of fund structures. Our survey data shows that selective outsourcing, strategic lift-outs and hybrid frameworks are helping fund managers to design operations that are more resilient, transparent and better aligned with the needs of investors.
Want further insight into the challenges facing private market CFOs and how they’re pivoting their strategies to suit? Read our full CFO survey report.
