Private equity firms play crucial mentoring roles, crafting winning strategies for companies at different stages, helping them succeed and outperform their competition. These firms manage multiple facets of a business and cover everything from asset sourcing and purchasing to crafting competitive bids in the market. They perform due diligence and collect actionable data that is required to make necessary changes and instigate growth, all while reducing costs and streamlining processes across portfolios.
With so many things to manage, private equity firms need more powerful, cleaner ways to improve private equity management. However, a private equity firm must execute its game plan with agility and precision to get a good start. One strategy to transform an over-performing PE portfolio into an unbeatable powerhouse is PE outsourcing. Let’s look at the top four factors that PE firms must consider before outsourcing.
1. Industrial Focus and Experience
While the market is full of outsourcing vendors, narrow down the list by limiting it to providers with considerable private equity experience. Since selecting the right service provider is crucial to a fund’s success in the long term, researching and making some sincere effort is vital. Finding a good vendor begins with understanding the potential vendor’s engagement team, including their members’ technical know-how and industrial experience. Moreover, they must demonstrate deep and broad resources to support private equity fund administration.
Here are a few points to consider:
· The engagement team must be forward-thinking and aware of issues in PE, including Environmental, Social, and Governance (ESG) concerns, new regulations, tax and accounting principles, and the latest trends and developments in the industry.
· The team must understand the PE firm’s investment structures and confidently build them despite their complexities.
· They must realize the importance of regular investor reporting.
· Enquire who will handle the funds onboarding and ask if they have previously onboarded PE investors with similar complexity levels and structures.
· Ask if the team members can work in the PE firm’s back office.
2. Talent Management and Corporate Culture
A strong team of talented professionals is the result of a healthy business culture that ultimately cultivates happiness in employees, who then go on to cultivate customer loyalty. Enquire how PE outsourcing providers engage and support their employees and clients to comprehend their values better. A PE firm must also consider the outsourcing vendor’s long and short-term strategic plans and how they support these goals. Understanding the vendor’s organizational structure and the performance of their team members will deliver meaningful insight into their service level.
A few things to consider include the following:
· The outsourcing vendor’s client retention and employee turnover rate.
· The provider’s methods of promoting, compensating, cultivating, and motivating its employees’ success.
· The number of clients they serve currently.
· Remote work strategies for employees.
3. Competitive Advantage and Technology Innovation
Back-office operations are going to be digital in the future. Fund administrators who primarily relied on manual processes earlier now embrace technology for automating their workflow. It helps reduce costs and saves time to focus on other high-level tasks. Working with an innovative PE outsourcing provider will pay off as it leverages technology to deliver customized administration services to its clients. Understanding the vendor’s technology setup shows its competitive advantage soon.
Key points to consider include:
· Use of technology platforms and their integration into the PE system.
· Ability to produce customized reports.
· Methods of preparing working papers and performing waterfall calculations.
· Automation vs excel-based tasks.
· Work collaboration and document-sharing technologies to facilitate workflows.
4. Quality Assurance
Even the best and most advanced PE outsourcing companies are not foolproof. That is why effective oversight is imperative. Fund managers must ask potential vendors about the resources they have dedicated to quality assurance, system control, and the processes they have in place.
Crucial points to consider include the following:
· Reviewal and approval of financial statements.
· Reviewing capital calls before executing them.
· Checking of system-generated partner emails before releasing them.
· Distribution calculations and signing-off methods.
While this is not a definitive list, these four considerations will make it easier for PE firms looking to outsource their work processes. With the right people, technologies, and procedures, PE firms can build a dream team to achieve the best position and ensure continued success.