KYC in private markets: Challenges, friction and the case for change

Know Your Customer (KYC) is a material process at the heart of global anti-money laundering (AML) and related regulatory frameworks. Through KYC, fund managers verify and validate the identity and risk profile of their investors, helping ensure that all monies invested are from legitimate sources. Ongoing monitoring supports sanctions and regulatory oversight and identifies any necessary changes to how the investor is handled and reported.

• A role reversal in scrutiny: Unlike the broader investment process – where limited partners typically scrutinise the manager – with KYC the dynamic reverses. Managers must ask for sensitive information, navigate investor expectations and maintain trust, all while managing growing regulatory scrutiny. This role reversal can be delicate: long, unclear or error‑prone processes risk damaging confidence at precisely the moment relationships are being formed
• Regulatory complexity: KYC expectations vary by jurisdiction, and globalised investor bases create a patchwork of requirements that are difficult to harmonise. Cross‑border structures, multi‑layered vehicles and evolving reporting standards all contribute to a fragmented process that demands time, expertise and significant operational effort
• The impact of private markets “retailisation”: The rise of retail capital in private markets is adding further strain as retail flows often move through multiple intermediaries, making beneficial ownership difficult to trace. These investors also tend to be high‑volume but lower value, increasing the relative cost of compliance and intensifying regulators’ focus on transparency, speed and control
• Outdated and manual processes: Although digital solutions such as automated onboarding platforms have the potential to transform the process – making it faster, more consistent and more auditable – many managers still rely on legacy, manual methods. This creates operational bottlenecks, introduces unnecessary risk, and places pressure on investor relationships
• Impact at both ends of the firm size spectrum: Importantly, these pain points are no longer confined to the largest managers; mid‑cap and smaller firms are increasingly aware of the reputational and commercial risks associated with outdated approaches

1. KYC is becoming a strategic priority, not just a compliance chore – 34% of fund managers now view KYC as an important operational requirement, while 16% consider it an essential strategic priority
2. Documentation overload and jurisdictional complexity are the biggest operational blockers – 54% of managers cited the sheer volume of documentation as their top KYC challenge
3. Legacy systems are slowing onboarding and delaying fund closes by weeks – Almost half of respondents still rely on spreadsheets and email, and 74% reported that KYC adds six to 30 days to fund closing timelines
4. In-house KYC models are struggling to scale, prompting a shift towards outsourcing – 52% of smaller managers still handle KYC fully in-house while 87% of larger managers have shifted to outsourced or hybrid models
5. The future of KYC is intelligent and investor-centric – The sector is headed towards reusable digital profiles, AI-supported onboarding, and global harmonisation of KYC standards

Read more on these key survey findings.