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Mid-market private equity firms face an increasingly competitive marketplace with more funds – and larger funds – being launched all the time. Additionally, venture capital funds are growing larger, moving into the small market space, and family offices and fundless sponsors are taking a larger share of mid-market M&A activity.
To help gain and maintain a competitive edge, private equity fund managers are increasingly outsourcing some of their middle and back-office functions to third-party experts. The main reasons that leading mid-market private equity firms to outsource their fund administration function are:
Cost Advantage
Outsourcing has always provided lower operating costs to companies in all industries by shifting the labor-intensive practices to providers that enjoy a lower cost of human capital.
Increasing Efficiencies
Third-party fund administrators remove many of the managerial and process headaches that maintaining a permanent internal staff can provide so that they can focus their time on their core investment strategies. The admins do all the heavy lifting of back-office work while the managers can flex their investing and sales muscles to grow the firm’s portfolio – and IRR.
Adaptability to Changing Regulation
It is more difficult now than ever to open a private equity firm and begin investing. The regulatory environment now – where making a single mistake can cause significant damage – has never been more burdensome. Outsourced third party fund administrators work with valuation agents to produce accurate, detailed fund data that is compliant with relevant regulations, providing a cost-effective peace of mind for the private equity fund manager client.
Security and Technology
The modern investor wants a more transparent private equity firm that can instantly provide detailed data to them in a secure way. Outsourced fund administrators use specific validation services and customised technology to support their private equity clients with the increasing needs of the investor when it comes to reporting. This technology demand is often not a core competency of a private equity firm and is significantly more cost advantageous to pass to third-party administrators.
Simplified Costs
While outsourcing lowers operating costs, it also simplifies them by fixing the expenditures. Investors are demanding more customized reporting which tends to involve a greater need for flexible technology and staffing requirements. Having those expenses fixed allows a private equity firms to better manage their cashflow and maintain a more straightforward operating structure.
Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here.
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EFSI is an independently owned, SOC-1 compliant, full-service fund administration firm. We provide accounting, reporting, administrative, and capital introduction services to a wide range of alternative investment funds including hedge funds, funds of funds, private equity funds, real estate funds, venture capital funds, and family offices. The center of EFSI’s service incorporates resilient technology and accomplished staff, providing clients a tailor-made service with exhaustive transparency. Give us a call today or reach out to our support team online. We look forward to hearing from you soon.