In the dynamic world of investment management, fund managers are consistently seeking ways to optimize their operations and enhance performance. As the complexities of fund administration grow – fueled by rising regulatory demands, technological advancements, and increasing LP expectations – a new operational approach has emerged: fund administration co-sourcing.
Fund administration co-sourcing is a hybrid model that combines internal resources with the expertise of third-party service providers. This model enables fund managers to leverage specialized skills and advanced technology without fully outsourcing, thereby retaining control over core functions. Co-sourcing appeals particularly to managers who seek to enhance their operations while maintaining flexibility and control over certain in-house processes.
"Historically, fund managers had a binary choice: handle administration internally or outsource everything. Co-sourcing offers a middle ground," explains Ismail Ekmekci, our head of U.S. Private Equity Solutions. "It allows managers to draw on the strengths of external partners while keeping key functions under their own roof, which is critical for managers who want to optimize performance but may not be ready to fully outsource.”
Why Co-Sourcing?
For many fund managers, co-sourcing aligns well with the evolving demands of investment management. It offers a tailored solution that can grow with the business, providing a balance between maintaining control over in-house systems and accessing expert resources.
"With the co-sourcing model, fund managers can stay on top of their data and processes without needing to build out entire teams for every function," Ismail notes. "The right service partner can not only manage day-to-day administration but can also suggest process improvements, which is a big advantage."
Co-sourcing allows fund managers to rely on service partners for tasks like fund accounting, reporting, and compliance, all while leveraging their own technology stack. This can be a game-changer, particularly when dealing with peak periods. "Fund managers with co-sourced operations find they can meet investor demands faster," says Ismail. "They have the resources to maintain continuity even as they scale."
Co-Sourcing in Action
Many managers are now seeing the value of co-sourcing for the flexibility it offers. “Alternative fund services providers, for instance, can leverage co-sourcing partnerships to enhance client data accessibility, accelerate decision-making processes, and ensure rapid responsiveness to market and investor needs. This approach allows fund managers to shift focus from administrative tasks to higher-value activities, such as portfolio management and investor relations,” says Ismail.
"At its core, co-sourcing is about partnership," he adds. "Fund managers want providers who work seamlessly with their teams, becoming a true extension of their operation. This synergy is what ultimately leads to successful co-sourcing relationships."
Strategic Advantages of Co-Sourcing
Co-sourcing enables fund managers to strategically position themselves for growth by combining the benefits of retaining critical functions in-house with access to a service provider's advanced technology and industry expertise.
This model also appeals to fund managers who value access to real-time data and need to meet investor queries promptly. “For instance, service providers that support co-sourcing on client systems enable fund managers to maintain control over their data, which is critical for responsiveness,” Ismail explains. “This kind of setup can establish a reliable ‘golden source’ of data for investor relations and performance tracking.”
Is Co-Sourcing Right for Your Fund?
Co-sourcing isn’t necessarily for everyone. Some fund managers may eventually transition to full outsourcing, viewing co-sourcing as an interim step. However, the model can be particularly beneficial for managers looking to test the waters with third-party support, while preserving their autonomy over certain in-house processes.
When evaluating whether co-sourcing is the right fit, fund managers should consider factors like their current technology setup, the administrative burden of existing operations, and their long-term growth strategy. “Choosing the right operating model is about understanding where your team’s strengths lie and where an external partner can add value,” says Ismail.
As the investment management industry continues to evolve, the co-sourcing model provides fund managers with a flexible option to enhance operational efficiency, meet regulatory demands, and stay competitive. By blending the strengths of internal and external teams, fund managers can find new ways to optimize their performance, meet client expectations, and drive growth.
Contact Ismail at iekmekci@tridenttrust.com to discuss how our experience can support your fund administration needs with a model tailored to support your fund growth strategy.