Aris Tsangaris
Fund administration serves as the essential core, the very cornerstone, of asset managers and investment firms, holding the key to their resounding success.
It's what keeps the wheels turning smoothly and the engine of your financial operations running at full throttle.
The million-dollar question we come to examine today is: to keep fund administration in-house or to outsource it to specialized service providers? A.k.a., “to outsource, or not to outsource”?
In this article, we embark on a journey to explore the pros and cons of both approaches, shedding light on why outsourcing may be your winning strategy.
Let’s start with in-house fund administration:
Pros: Keeping it in-house certainly caters to increased control and proximity. It offers not only control but also the opportunity for customization over your internal processes and operations, giving you the ability to tailor these to your specific needs. After all, these are your internal ops and culture, and if anyone has in-depth knowledge of them, it’s your own team, which makes the in-house solution all the more tempting and sensible. Moreover, this solution equips you for immediate responses to changing priorities, rather than having to rely on the pace of outside/third parties.
Cons: On the flip side, choosing to keep fund administration in-house places the responsibility squarely on your shoulders. While this approach grants you greater control over your operations, it comes with the hefty burden of managing and retaining specialized talent. You'll need to invest not only in hiring the right experts but also in cutting-edge technology to support them. Furthermore, in-house administration means staying vigilant and constantly updating your knowledge to keep pace with the ever-evolving landscape of financial regulations. It's a demanding endeavor that requires continuous effort and investment.
Proceeding to Outsourcing:
Pros: Outsourcing fund administration offers a multitude of benefits that can't be ignored. Firstly, it allows your firm to tap into the expertise of dedicated professionals who specialize in fund administration. This means access to the latest knowledge of the industry, which, let’s face it, is changing on an almost daily rhythm, along with access to best practices and cutting-edge technology without the overhead costs of building an in-house team. It also means expert handling of complex regulatory and compliance matters, a benefit not to be taken lightly. Additionally, outsourcing provides scalability and flexibility, allowing you to adapt swiftly to market changes and manage costs more effectively. And last but not least, it grants you the peace of mind that comes with having experts take care of complex regulatory and compliance matters.
Cons: Outsourcing also comes with a few potential downsides. One of the main concerns is the need to rely on external service providers, which may reduce your direct control over certain processes. Communication and coordination with third-party firms can sometimes be challenging, and the risk of data security breaches is a constant consideration. Additionally, outsourced providers may have multiple clients, potentially resulting in less personalized attention to your specific needs. This is why it's essential for you to conduct thorough research and partner with respected professionals who will support your Fund's success rather than hinder it.
So, whether you're a boutique investment firm or a large asset manager, understanding the pros and cons of outsourcing vs. in-house fund administration is crucial to finding the strategy that best aligns with your Fund's goals and vision. Devote the necessary time and careful consideration to your decisions, and you shall pave the path to prosperity!
* This publication has been prepared as a general guide and for information purposes only. It does not purport to be comprehensive or to render professional advice. Before making any decision or taking any action that may affect you and/or your business, bespoke advice should be obtained.