Why are Private Equity Firms Using Outsourcing as a Value-Delivering Strategy?

Why are Private Equity Firms Using Outsourcing as a Value-Delivering Strategy?

The ultimate goal of a PE firm is to invest in the company’s growth and garner profit from it. But it is also important to focus on investor relations, as it adds value to its assets during this period. Private equity firms traditionally charge their clients a fixed portfolio management fee, and they constantly look for ways to reduce operational costs without compromising efficiency. One such way is to outsource private equity solutions. PE outsourcing appeals to companies, as it gets things done more quickly with more efficiency and better customer service.

Let’s look at the reasons why PE firms are using outsourcing as a value-delivering strategy.

Benefits of PE Outsourcing

Outsourcing regular business operations help PE firms reduce their funded companies’ operational costs and they don’t need to hire more staff. The outsourced company’s staff works as the PE firm’s extended team operating on a plug-and-play basis. 

Outsourcing partners help PE firms in the following ways:

  • Saving costs compared to hiring additional staff and teams
  • Keeping the company’s internal resources free, allowing them to focus on their strategic tasks
  • Increasing returns via sustainable investment strategies
  • Implementing best operational practices
  • Mitigating internet security risks
  • Staying updated about the latest changes and trends in the regulatory landscape
  • Making it easier for the firm to scale or expand
  • Deploying technological tools to oversee larger data volumes and training staff on its usage
  • Delivering accurate and timely financial reporting, portfolio value, and data-based insights
  • Easy access to skilled and experienced professionals

Outsourcing private equity solutions is a significant decision for a PE firm. All these benefits make a fund manager confident about outsourcing its operations and boosting its resources.

The Need to Outsource

Partnering with a strong third-party outsourcing service provider brings expertise to the organization at an excellent price and managers get more time. This way, they can concentrate on crucial matters like asset allocation. The best thing is that the firm does not need to hire people if they outsource their fund administration to third parties. Still, they gain access to a skilled team of experts with innovative technologies and advanced industry knowledge. Getting help from a trusted outsourcing partner makes the PE firm more effective and improves its entire front office.

By outsourcing, a PE firm becomes more efficient in sourcing deals, generating the best performance, and efficiently dealing with cash flows, capital contributions, and capital call letters. All that keeps the investors and fund managers comfortable as they rarely find errors in the financial reports they receive. 

Most fund managers believe PE outsourcing is more beneficial than maintaining in-house admin functions.

The Future of PE Outsourcing

Outsourcing private equity solutions is an established pattern among private equity firms. Investors know the benefits of outsourcing their admin functions, as they get more time to focus on evaluating transactions, managing portfolios, monitoring valuations, and sourcing the best investment opportunities. However, the third-party service provider must have clear communication lines with the managers to achieve the desired results with minimum cost and maximum efficiency.


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