The evolution of private markets has brought challenges to the outsourcing model
Private markets have matured significantly over the past decade. Fund managers now have more frequent, transparent data needs—driven by a need for both deeper internal analytics and for faster responses to LP queries. Fund administrators who use legacy technologies lacking modern capabilities and processes have not been able to keep up, which has resulted in perceived subpar service, inability to meet bespoke needs, and a lack of data depth desired by modern fund managers available in the time frames demanded.
Caused by the reasons above or otherwise, there are many instances where fund managers switch or use multiple administrators, which leads to another issue: data silos between funds.
Some GPs have tried to find workaround solutions to these issues such as running their own shadow accounting processes so they can check the data is correct and where required, consolidate multiple sources of data all into a version that always lives in their own environment. These types of workarounds have created additional administrative and financial burden for firms.
To minimize these issues, certain GPs are pursuing a new trend: co-sourcing.
What is co-sourcing?
Co-sourcing is a hybrid approach to back-office operations that mixes aspects of in-house and outsourced fund administration. It’s not an entirely new concept, having many similarities to the long-established practice of business process outsourcing (BPO), but it is a relatively new twist on the theme with the focus on where the technology, hence the data, sits.
With co-sourcing, fund administrators service fund managers the way they normally would— the key difference being using the GPs own software systems, i.e. remote access to the GPs own license of the software. This way, fund managers can own their data while also leveraging the expertise and resources of fund administrators.
Differences between in-house, outsourcing, and co-sourcing
There is no single right approach when it comes to back-office operations. Every firm has different priorities and resources, which means that the decision to outsource, co-source, or manage in-house needs to be made on a case-by-case basis.
The main considerations for choosing a back-office operating model are resources and data requirements, and fund managers need to carefully evaluate how their decision might affect them in years to come.
In-house:
In-house administration with modern software and industry experts results in firms using their data effectively while having complete control, powering deeper internal analytics and faster response times to LP requests. However, without robust technology, people, and processes, in-house administration can quickly become a huge drag in terms of efficiency, LP relations, and even regulatory repercussions.
So done right, in-house administration can become a huge source of operational excellence that reverberates across multiple departments, but takes in-house resources and expertise.
❌ Administrative burden remains in-house.
✅ Technology stays with the manager’s organization.
✅ Hence, data stays within the manager’s organization.
❌ Usually not as scalable without additional headcount.
Outsourced:
When firms outsource administration, they shift the responsibility of investor onboarding, accounting and reporting to a third party. Although outsourcing frees up internal resources, it has its drawbacks.
As mentioned previously, GPs are conducting more in-depth analysis to power both investment decisions and scenario modelling. Furthermore, LPs are requesting deeper data more frequently from their GPs— including ad-hoc requests that require custom calculations. In the outsourced model, fund managers are at the mercy of their fund administrators’ prioritization and resources, which can add delays to fund operations— either through the period between request and response, or validating the information provided.
In addition, firms who use multiple administrators will have data silos between funds, harming their ability to provide information to their LPs that span across multiple funds.
✅ Administration delegated to external service providers.
❌ Technology owned/run by the service provider.
❌ Hence, data not directly accessible.
✅ Scalable via the service provider.
Co-sourced:
Co-sourcing finds a balance between in-house and outsourced operating models. The fund administrator provides its typical services, but the GP buys the software so it owns the data completely and can access it anytime to run deeper analysis or respond to custom requests. This way, firms can balance the benefits of both in-house administration and outsourcing.
✅ Administration delegated to external service providers.
✅ Technology stays with the manager’s organization.
✅ Hence, data stays within the manager’s organization.
⚠️ Scalable in terms of GP workload, but some potential additional cost for owned software (unless provided by co-sourced admin).
Why LemonEdge works for any operating model
In-house:
The LemonEdge system has been designed to eliminate many risks fund managers face when managing fund administration in-house. Specifically, LemonEdge eliminates the use of offline spreadsheets and workarounds, as all data, processes, functions, and calculations can be configured and executed on the system, and any changes can be controlled through granular permissions and a detailed audit trail. Having all data in the system also allows LemonEdge to automate many processes including custom workflows, ensuring that firms can infinitely scale their operations without significantly growing headcount.
Co-sourcing:
LemonEdge is particularly well-suited for the co-sourcing operating model, as the system offers a great degree of flexibility and scalability to fit each firm’s unique workflows. This not only enables fund administrators to solve bespoke needs of their clients more effectively, but also allows fund managers to run deeper analytics with their data without resorting to offline Excel workarounds.
Many fund administrators, understandably, are hesitant to pursue co-sourcing, as it requires them to use multiple client systems instead of their own single system. That said, the most innovative fund administrators understand why certain firms may prefer co-sourcing and are happy to work with their clients’ preferred approach.
Hear directly from Ian Lynch, the founder of Alchelyst, a full-service fund administrator, on his thoughts around why LemonEdge is a good fit for co-sourcing:
Understand if co-sourcing is the right approach for you
Shifting back-office operations to a new model is a big decision to make. At LemonEdge, we act as partners to our clients and explore the best approach for their unique needs. If you would like to learn more about whether co-sourcing is right for you, reach out to our team and we can evaluate your current processes and desired outcomes together.
.webp)
.webp)
