Why Outsource to Private Equity?
Assets under Management (AUM) traditionally attract fixed management fees for investment bankers. This strain brings to the fore the solution of outsourcing to private equity firms that envision expanding efficiently in bringing the costs down.
At this juncture, private equity outsourcing comes into the pivot for streamlining research, analytics, and the strategy of funds and portfolios.
It is conventional for Investment Bankers to be in the frontline of operation outsourcing. Outsourcing to Private Equity firms is evolving that brings the need for its expansion.
What does Outsourcing to Private Equity Firms Mean?
The objective of outsourcing to Private Equity firms is to ensure quality and productivity in the operational value chain. It encompasses outsourcing different services for support and assistance such as:
Administration of funds
Fund administration outsourcing is a solution to limited partners and many other stakeholders. It is simply the process of outsourcing strategy, research, and analytics of funds to private equity firms. Say, financial reporting outsourced can result in objective analysis and reporting. Under the roof of fund administration, the scope of the following can be outsourced:
- Valuation
- Accounting
- Expenses
- Reporting
- Reports
Portfolio Management
It is a cost-cutting solution to outsource portfolio management to specialized firms such as private equity enterprises instead of establishing a separate division in the inherent firm for the same. This outsourcing can bring a concurrence of data analytics, marketing, strategy, research, and procurement.
Portfolio management outsourcing may comprise of:
- Mergers and Acquisitions (M&A) strategy
- Chief Financial Officer (CFO) services
- Monthly Information System (MIS) and dashboard
- Research and Strategy services
Investment Analysis and Management
Ad hoc projects and assignments around investments are a noteworthy outsourced avenue to private equity enterprises. It is an efficient solution to delegate investment analysis and management that maximizes the growth potential of private equity. It may entail:
- Financial Modelling
- Financial Valuation
- Due Diligence services
- Industry reports
- Company profiles
Investor Relations and Fundraising
The major activity that can be outsourced to private equity firms is Investor Relation and Fundraising. This would mean contracting out the functional specialization of:
- Investor Reach-outs
- Customer Relationship Management (CRM)
- Pitch Decks
- Newsletters
- Memorandum of Confidential Information
What are the Benefits of Private Equity Outsourcing?
Outsourcing to private equity firms ushers a wide range of long-term benefits such as:
Confidentiality
Contracting out financial functions ensures confidentiality and objectivity in operations. This may be questionable if the information of parties can be kept discretely by the inherent team. Third-party finance is looked upon as a confidential service by private equity firms that foster due diligence mechanisms.
Accommodating Time Zones
Globalization of outsourcing to private equity enterprises accommodates the time zone productivity and operations. The same task performed by the inherent office team depends on the team’s work routine, while outsourcing can double the productivity.
Concentration on core objectives
Outsourcing to private equity firms can enable enterprises to give the fullest attention and focus in achieving core objectives. This provides a good amount of time and effort to scale operations in-house, in line with the set long-term core goals as an organization.
Team extension
Cost optimization centers when arms extend to private equity enterprises. This would ramp up the process from in-house analysts’ workload to quality work from offshore or off-shoot specialized enterprises. It may act as a plug-and-play model that can be modified or dismantled as necessary.
Skill advantage
Delegating projects, assignments, and activities to private equity businesses can enhance the skill advantages of those businesses. It can increase access to business-critic and industry-specific skills for private equity back offices. It can enrich the mechanism of expertise and knowledge exchange for better research, strategy, and analytics.
Cost efficiency
Private Equity fund outsourcing is a route to save costs. Saving costs enhance the profit potential that extrapolates higher profit margins to investment bankers, limited partners, and rooted stakeholders.
What’s the Difference Between Outsourcing to Private Equity and Venture Capitalists?
The key difference between private equity and venture capitalist outsourcing is the type of firms dealt with by them. Private equity can handle maturing enterprises while venture capitalists manage start-ups.
Both financial services invest in companies and exit by selling their investments. Still, their operations differ in the amount of equity, size of investments, fees, size of enterprises dealing with, etc.
Is Private Equity the Emerging Trend?
The portfolio talent pool is on a steady rise, especially in the private equity segment. Outsourcing would mean gaining a competitive advantage and sustaining in the waves of emerging trends to be highly relevant.
Research, strategy, and analytics are the cornerstones of outsourcing that can enrich the operational value chain in the overall productivity and quality decision making, management, and service delivery.
Private equity-specific outsourcing is a rising trend with immense potential to redefine the pertinence in financial acumen and expertise.
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