Outsourcing might not be a natural choice for private capital in Australia, but stretched fund managers are looking to drive new back-office efficiencies.
Australian private fund managers are in the habit of doing everything in-house. There is no regulatory pressure for third-party support, and local investors, conscious of cost, do not push for independent oversight of funds. But that is starting to change. New pressures are persuading fund managers to look again at outsourcing.
A few pioneers are searching for a complete outsourced fund administration service. Others want a hybrid solution to supplement in-house teams and drive back-office efficiencies.
What is driving this shift? Partly, it is a personnel problem.
The COVID pandemic drained the Australian talent pool. Closed borders meant foreign professionals were locked out of the country for long periods. Driven by the pandemic, the Great Resignation caused many to rethink their work-life balance, values, and ambitions, causing a sizable number of Australians and foreigners to leave their jobs. Even large funds are struggling to find the experienced accountants and administrators they need. Smaller funds are having to do more with less.
Fund managers must simultaneously deal with a rise in the need for data and reporting.
Australia’s real estate and private equity markets are important draws for overseas institutional investors. These knowledgeable limited partners are requesting customised information that frequently goes beyond conventional investor disclosures. Some fund managers are discovering that their conventional reporting formats and procedures fall short in this regard. Then there is ESG, which has updated guidelines on where to obtain, validate, and report sustainability data.
Given the situation, it is not surprising that managers are reaching out to third parties like Hyperion Business Consultants to help them run their funds.
Some of them are talking to us about a plug-in solution. That effectively means we co-manage their accountants to help clear backlogs.
But this is a temporary solution to challenges that are here to stay. It is a sticking plaster at best.
Established funds are having difficulty expanding with their present back-office staff. Building back-office staff for new funds is challenging.
However, new ventures in Australian real estate and private equity, which prospered during the pandemic, are appearing thick and quickly. Under the pressure, back-office teams are deteriorating. In some situations, the rigid use of internal models is working against progress rather than for it.
Scalability is one reason Australian private capital fund managers are taking a closer look at outsourcing. Another is technology. Newer funds without a well-established technology platform are looking to outsourcers to provide one. That saves them the time and expense of sourcing, buying, and maintaining their own.
Weightier funds may already have the technology they need and naturally want to squeeze it for every drop of ROI. But increasingly, investors demand instant access to data, and more LPs are looking to funds to provide it. Many traditional technology solutions do not include an investor portal as standard. When top-of-the-line technology is affixed to a full fund administration service, the benefits of outsourcing become clear.
With a competent third-party provider on board, that rounded service gives fund managers the ability to scale up quickly. It clears backlogs in the back office. And for funds struggling to find good accountants, administrators, and IT staff, outsourcing reduces the cost of hiring, training, and outfitting them.
That is an attractive proposition in the current climate. Many Australian private capital fund managers have not been big fans of outsourcing in the past, but new pressures and opportunities are making them change their minds.
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