How do I know when I should outsource operations?

Outsourcing can support and transform your fund management business, regardless of where it is in its growth journey.

OSMO provides flexible, expert resource to support fund managers in achieving their specific business goals. Here are some of the primary triggers that might cause you to outsource your fund operations, and how that decision can help you.

 

You're starting up.

Outsourcing at the start-up phase offers several significant benefits, including ongoing fees that apply from fund launch, eliminating the possibility of in-house resource sitting idle if the launch is delayed. There is no lead time on hiring a resource as there is no notice period for a new hire to work out. And there are the significant time-savings for your COO - or even the option to outsource the COO role itself.

 

You're adding an SMA

Another indication that outsourcing operations may be necessary is when you add an SMA (Segregated Managed Account) or a second fund. These additions create additional complexity and workload that require deeper coverage and more reporting requirements for SMA clients. A new fund also adds complexity, as trades need to be allocated, and new or added service providers such as Prime Brokers and Fund Admin create more touchpoints. These additional requirements may not justify a full in-house hire, and they can be efficiently delivered by an outsourced partner.

 

Your AUM grows

As AUM (Assets Under Management) grows, it is essential to de-risk by minimising dependence on the COO. In the early stages of a launch, especially if the strategy is relatively simple (long only with low volume), the COO may typically cover large elements of the operations role to keep costs down. However, as AUM grows and fee income increases, there is an increased budget that should be used to free up the COO to move up the value chain and focus on functions such as investor due diligence as well as reducing keyman risk.

 

You're bullish

Another indication that it's time to outsource operations is when you have a high degree of confidence in the future of your model and a desire to grow. If performance is good, and there is now confidence in the business, you'll likely invest in order to minimise barriers that have previously prevented you raising assets from new or institutional investors. Outsourced resource can help you improve the functions associated with this, for example by improving operational robustness and / or streamlining mid- and back-office processes. Thereby increasing the chance of passing operational due dilligence.

 

Someone quits

You're never more likely to feel the pain of dependence on an individual than when a valuable in-house resource leaves. This can be a particular issue in smaller boutique asset managers, where younger operations professionals may not be able to get the career support or even social life that they would enjoy in a larger organisation. In these cases, outsourcing operations can help alleviate the burden and ensure continued smooth operations - and, of course, not just in the immediate term but also on an ongoing basis.

 

You're bloated, or you're starving

Lastly, regardless of where your fund is in its growth cycle, it pays to keep an eye on your core operating model. As firms grow, they can become bloated and overlook operational inefficiencies and cost. When performance drops and assets drop, fee income decreases and the spotlight is shined on cost.

In either of these cases, flexible outsourced expertise can help you achieve sustainable and steady growth in a cost-effective way.

 

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