New hedge funds require more than access to capital investment and skilled portfolio management. To succeed, they must have reliable back-office operations — but this can pose a challenge. When fund managers try to build out these functions, they soon discover that hiring internally entails a significant amount of time and money.
Fortunately, there’s another approach that minimizes these costs. By outsourcing key functions to trusted service providers with specialized training, fund managers can gain operational efficiency.
This doesn’t mean delegating the ultimate responsibility for accurate information — the fund manager must still ensure the integrity of the fund’s data and results. However, the right third-party expertise will make the fund manager’s job easier. When service providers have attention to detail and respond quickly to your fund’s needs, it helps you stay nimble. Instead of devoting extra resources to back-office issues, you can concentrate on portfolio management and fundraising.
Let’s explore additional benefits fund managers enjoy with back-office outsourcing, as well as key outsourced functions that help the business run smoothly.
How Do Third-Party Providers Help Fund Managers?
As we noted earlier, outsourcing can save time and money. Instead of hiring support staff, dealing with HR issues, and building back-office infrastructure, fund managers can enlist third-party providers’ specialized skills.
Cost-efficiency isn’t the only consideration. As structures become more diverse and complex with each passing year, fund managers will benefit from the expertise of professionals who are well-versed in an array of fund structures and financial instruments.
When you outsource vital functions, it can also improve the way investors perceive your fund. That’s because investors place a high priority on efficiency, which you can achieve by leveraging third-party providers’ skills and technology. When you control costs and build a strong team of trusted partners, you build trust with investors.
That trust will continue to grow, as outsourcing allows you to focus on core competencies like deal sourcing and fund performance. Here are some of the functions to consider for third-party providers:
As heightened regulatory scrutiny places a more intense focus on record-keeping for funds, outsourcing fund administration has become common practice. When you entrust these critical services to a third party, you can streamline fund operations by leveraging the fund administrator’s expertise and technology. This will improve controls, processes and procedures as you launch your fund. They have the technology to calculate and deliver timely NAVs as well as investor reporting. Fund administrators also simplify the audit/tax process as they work hand-in-hand with the fund’s audit partner to help facilitate the timely completion of financial statements and tax reporting.
By outsourcing IT services, fund managers reduce tech overhead and eliminate the need to learn new systems. This also provides investors peace of mind because a robust technology infrastructure is necessary to protect confidential information. It’s even more critical today, considering the increased risk of cybersecurity threats. IT providers have the infrastructure and support to ensure the security of the fund’s data, along with investors’ data. With outsourcing, fund managers don’t need to be distracted by server maintenance and software updates. Instead, they can place their focus where investors want it: managing the portfolio and generating returns.
Today’s fund managers face intense regulatory oversight, and that makes experienced compliance experts even more critical. To ensure timely reports and enforcement of policies, fund managers require a skilled third-party provider. In addition, the compliance expert’s knowledge of jurisdictions must be aligned with the specific jurisdictions of the fund. Reputable third-party providers have the experience and technology to mitigate the risk of regulatory non-compliance and instill investor confidence by implementing proper fund governance protocols.
Many investors want the reassurance of a CFO/COO as an integral part of back-office operations. This can present a problem for new hedge fund managers because they often choose not to hire a full-time CFO/COO for the launch of their first fund. With outsourcing, fund managers can benefit from a CFO/COO without the accompanying hiring costs. Outsourced CFO/COO providers can assist with forecasting and budgeting, reviewing the fund administrators NAV package, liaising with third-party service providers, and preparing the books and records for the fund management company.
Choose A Trusted Partner to Support Your Fund Goals
In today’s environment of increased regulation and investor scrutiny, fund managers need to have a strong team in their corner. When you collaborate with trusted partners dedicated to your long-term success, outsourcing specific services can streamline back-office operations and instill investor confidence. By fostering operational excellence that mitigates regulatory and reputation risks, outsourcing can provide the resources to help your fund scale. At SFS, we work with fund managers daily to identify the optimal fund structure and service provider partners. Get in touch with us.