The Rise of Co-Sourcing and Lift-Outs for Established Fund Managers
In the past few decades, new fund managers have often started their operations with the support of fund administrators to streamline operations and reduce costs, alongside the rise of co-sourcing and lift-outs for established fund managers. While this trend is expected to continue in 2025 and beyond, what about the established fund managers who were operating before the rise of this model? How are they adapting to the increasing demand for operational efficiency, reduced risks, and investor satisfaction?
Striking a Balance
Co-sourcing, which combines internal resources with external third-party support, has become an increasingly popular solution. By allowing third-party providers to access the manager’s systems for tasks like investor platforms and reporting, fund managers can maintain control over their books and records while reducing headcount and associated costs.
The co-sourcing model helps create efficiencies by outsourcing time-intensive tasks to subject matter experts. This can also reduce the likelihood of errors when responsibilities are outsourced to specialists rather than relying on staff members who may be stretched thin. Additionally, co-sourcing introduces an extra layer of checks and balances, ensuring a higher level of accuracy in administrative processes.
Another key benefit of co-sourcing is its ability to act as a safeguard for employee absences, whether short- or long-term. It also serves as a form of succession planning, as it can reduce the need to replace key staff members, especially for critical roles, by leveraging external expertise.
A Complete Overhaul
Lift-outs, where a fund administrator takes full control of operations—including employees, systems, and sometimes even office space—have gained significant traction in recent years. This model offers several advantages, including improved operational efficiency, risk reduction, and potential cost savings for managers.
For managers, the primary advantage of a lift-out lies in its ability to address investor concerns. Many investors, particularly in hedge funds, private equity, and venture capital, require that their fund managers use a third-party fund administrator. By adopting a lift-out model, managers can satisfy these due diligence requirements, reassuring potential investors and helping streamline the investment process.
Additionally, the lift-out phase often includes a thorough due diligence procedure, where the new administrator reviews all books, records, and operations. This audit can uncover any existing operational gaps or inefficiencies, giving the manager the opportunity to improve internal processes, compliance, and reporting systems.
The trend of outsourcing functions such as fund administration has become the new standard for many firms, including those with a long history in asset management. By implementing models such as co-sourcing and lift-outs, established managers can significantly reduce costs, improve operational efficiency, and mitigate risks—ultimately helping them focus more on growing their investments and attracting new capital.
By adopting these more modern, efficient models, fund managers can position themselves for success in the evolving financial landscape. The shift towards outsourcing isn’t just a short-term trend, but rather a key strategy to enhance long-term growth and operational resilience.
