The outsourcing landscape has evolved significantly, driven by the rising complexity in regulatory requirements and the increasing diversity of market players.
Private Capital firms are now navigating the growing pressures from investor demands, organizational transformation and broader market revolution, prompting them to ask critical questions: Who should we partner with? What should we look out for? And, more importantly, how do we stay ahead?
Given the significant role of fund outsourcing in a firm’s operating model, GPs need to stay informed about these evolving trends, ensuring their outsourcing strategies remain relevant and consistently deliver maximum value in a dynamic environment.
Trend 1: Market Consolidation
What’s happening?
The fund administration landscape has seen significant consolidation, marked by numerous lift-outs and M&A, with over 30 transactions since 2022.
We will continue to observe the consolidation trend among administrators, each aiming to deliver greater efficiency and wider scope of services to their clients. However, large-scale organizational strategies bring risks, including integration failure, misalignment of priorities, and even disruptions to BAU operations if not properly managed.
Therefore, it is crucial for fund managers to stay informed about their outsourcing partners, considering the potential impact of this trend on ongoing administration relationships. Speak to our team of experts to get insights on the evolving fund administrator landscape.
Implications for Fund Managers:
1. Focus on Service Quality and Consistency
While most GPs may have limited influence over their fund administrator’s business strategy or organizational restructuring, they can take proactive steps to secure a commitment from their administrators to deliver consistent service quality such as refreshing SLAs and setting well-defined, easily trackable associated KPI metrics
2. Own and Future-proof the Firm’s Data
GPs should consider owning their data through an in-house data platform like Holland Mountain’s ATLAS. Reducing dependency will mitigate the risks and potential disruptions caused by market consolidation, as well as reducing both the risks and effort associated with moving fund servicing providers
Trend 2: Data Consolidation and Integration
What’s happening?
Driven by increasing demand for bespoke reporting and data analytics, fund managers continue to explore integrated data solutions to achieve a single source of truth across multiple data sources:
- Vertical consolidation: Multi-layered data look-through, from the lowest-level portfolio investments up to the highest-investor level.
- Horizontal consolidation: Integration across front, middle, and back-office systems along the fund and investor lifecycle, combining data from multiple tech platforms, data sources, and/or service providers.
How? We have observed Private Capital firms exploring multiple approaches, either by building their own data platforms, licensing off-the-shelf providers, or relying on their fund administrator’s data capabilities to support their ambition.
Implications for Fund Managers:
1. Reviewing the operating model
To identify the best-fit solution, we advise fund managers to first take a step back and assess internally – reviewing the current state such as existing architecture and data flows, while defining the target state and desired outcomes. Our expert team at Holland Mountain can help you review your current outsourcing model.
By understanding the gaps and necessary requirements, GPs can make more informed, strategic decisions about the optimal solution, such as implementing an in-house data platform (which offers greater flexibility and less dependency) and determining how the fund administrator’s data capabilities could complement and enhance the desired architecture.
2. Consolidate your data
The journey to the target state is never an overnight process. The outcome of a comprehensive review will inform the GP of a broader range of options, including how to effectively leverage their administrator’s data capabilities as a pragmatic interim solution to address immediate needs.
In the long term, developing a more advanced, digitalized data exchange through an internal data platform, seamlessly connected to the TPA systems, will provide the GP with greater control over their data, enabling a self-servicing model and enhanced analytics.
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Trend 3: Strategic Partnerships Over Transactional Relationships
What’s happening?
Growing maturity in an outsourcing relationship whereby GPs are increasingly viewing their fund administrators as strategic partners rather than just service providers.
Firms are proactively seeking ways to maximize the value derived from their outsourcing relationships, shifting from a conventional, one-way client-provider communication into more strategic, dialogue-based, and forward-looking partnerships, where the administrators can dynamically support and advise the fund managers of industry changes and best practices.
Implications for Fund Managers:
Fund managers are advised to move from a transactional arrangement to a more collaborative partnership, with steps such as:
1. Focus on continuity and service-level consistency
As a reliable partner, your fund administrator should consistently deliver essential services that align with expectations, covering a broad range of offerings and jurisdictions, both for your current fund strategy and any future fund launches. Holland Mountain’s fund admin review services can help you assess your current outsourcing model.
2. Tap into their network and connections
GPs should actively leverage their fund administrator’s resources, including team extensions via secondments, access to peer connections and industry insights, and other networking opportunities. This will enable GPs to gain valuable industry knowledge, strategic guidance, and leverage strong industry networks.
3. Maintain regular communication
Establishing a closer relationship, supported by an agile delivery model and robust governance structures – including clear oversight and defined SLAs – fosters effective communication and collaboration that strengthens the partnership, ensuring transparency and accountability across all interactions.
4. Leverage their expertise
Look to leverage TPA’s subject matter expertise for technical insights on new and upcoming regulatory requirements and market developments.
- A recent example: The introduction of ILPA requirements highlighted the importance of proactive fund administrator support.
Tap into administrators’ expertise not only for day-to-day operations but also for broader strategic initiatives such as fundraising, fund set up & structuring, and investment monitoring ensuring adaptability and continuous improvement in your operational efficiency.
Adapting to trends is an advantage
By leveraging advanced data solutions and improving their partnerships with administrators, fund managers effectively position themselves for scalability, efficiency, and adaptability amidst increasing complexity.
Holland Mountain’s fund outsourcing strategy experts can help you reassess and optimize these critical relationships, ensuring your firm is positioned to thrive today and as you continue to grow.
Holland Mountain can help you with:
- Strategy and best practice in establishing an optimal outsourcing model
- Selecting the best-suited fund administrator with our RfP process
- Project manage and support fund admin onboarding
- Review and benchmark your current outsourcing model and scope against your peers.
- Establishing an in-house data platform to access real-time data held by your fund administrator.
