The medium-sized business case for outsourcing


Other dynamics that have accelerated the adoption of outsourcing include regulatory and technological changes that affect business scalability. As reporting becomes more complex, so does the need for specialist knowledge. In addition, the fund structures are more complex than they were a decade ago. This places a heavy burden on internal resources dealing with the scope of reporting requirements and tax compliance issues. Instead of paying the cost of hiring a Chief Compliance Officer who is fully dedicated to ongoing regulatory changes, companies outsource this role to service providers with a high level of expertise.

Beyond the reach of Excel

Another area of ​​rapid change is technology as organizations recognize the need to go beyond the limitations of Excel spreadsheets. You want to take advantage of technologically advanced platforms that are constantly improving to support data-driven decisions and provide secure reports. You need technology that enables the transparency that investors demand. Investors ranging from family offices to retirement plans increasingly require detailed data on potential deals, cash flows and portfolio benchmarks and want that information in real time.

Here’s the challenge: It’s expensive to acquire or build the IT infrastructure needed to communicate securely, not to mention the cost of maintenance and upgrades. Technology can also pose significant risks as hackers find increasingly sophisticated ways to fix vulnerabilities and access sensitive data stored in the cloud. Because of this, general practitioners are turning to third-party vendors who not only offer a more cost-effective approach to IT infrastructure, but also help ensure reliability and security. This allows GPs to focus on investment strategy and fundraising. In this way, outsourcing decisions can improve a company’s agility and allow it to quickly add new funds to respond to changing market dynamics.

When deciding where to put their money, LPs don’t just consider return on investment or IRR. You are now incorporating operational efficiency into your due diligence process. Investors increasingly want to work with GPs who can focus on strategic investment decisions by delegating back office operations to a team of experts.

Additionally, the pandemic has underscored the need for outsourcing to experienced professionals by highlighting the importance of business continuity and the role of online services. It also highlighted the need for general practitioners to focus on core competencies and optimize their investment strategy, especially amid economic uncertainties. Relying on third-party experts for functions such as bookkeeping, reporting, and compliance allows general practitioners to focus on securing business deals and helping run portfolio companies. It offers the opportunity to optimize the operating model. In the past, companies equated outsourcing with a lack of control. Now they realize that it can give them more control.