Private fund managers are re-evaluating how they structure their operational frameworks as the complexity of operating an investment firm increases. The demands on private fund CFOs and COOs have expanded well beyond traditional accounting. They must now manage everything from data transparency and regulatory compliance to investor servicing without compromising quality.
While fully outsourced fund administration can be a fit for some firms, it can also prove too rigid, especially for those with internal systems and years of data. At the same time, keeping back-office functions in-house can overextend teams. In response, a growing number of fund managers are adopting a co-sourcing model —a flexible, skill-based partnership designed to augment internal capabilities without displacing them.
Any co-sourcing partnership starts with people. Lean internal teams oversee multiple entities, leaving little room to take on new initiatives or deal with unexpected complexity. Co-sourcing offers a flexible way to bring in seasoned professionals who operate as a true extension of the internal team.
These individuals work inside the fund manager’s environment, aligning with daily workflows and working off the same systems. Whether for a specific project or as an ongoing resource, co-sourced teams bring knowledge and support to fund managers without the long-term commitment of a new hire.
Efficiency in co-sourcing isn’t about doing more with less. It is about doing more with the right resources. As investment firms grow, the volume and complexity of operational tasks often outpace the bandwidth of internal teams. Co-sourcing provides a scalable framework to meet that demand without sacrificing quality.
For example, for funds that launch a new strategy, the primary fund administrator may lack the expertise or systems to confidently produce financial statements. A co-sourcing partner with experience in the strategy can support the fund manager by providing shadow accounting services. In this situation, the fund manager gains an independent layer of oversight by leveraging specialized teams for shadow accounting without having to undergo an intensive change in fund administration.
Co-sourcing resources can be deployed quickly, for a single project or over the long term, allowing fund managers to flex their operational capacity in response to growth or unexpected needs.
Co-sourcing technology resources is an attractive option to many fund managers because outsourced personnel are trained on the manager’s existing technology and typically vetted and recommended by the technology vendor. Rather than undergoing an extensive data migration when moving to a fully outsourced fund administration model, co-sourced teams work within the systems already in place. This preserves business continuity, avoids expensive conversions, decreases the degrees of separation regarding data ownership, and enables the manager to maintain control.
Ultimately, co-sourcing is about choice. It’s the ability of a fund manager to scale up or down resources as the firm’s operational needs change without giving up control or taking on additional resources. As complexity in the private capital space continues to rise, this hybrid approach offers fund managers an opportunity to leverage experienced teams without sacrificing quality.
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