What is co-sourcing? 

Co-sourcing in fund administration has emerged in recent years as a hybrid of outsourcing, which has long been popular for streamlining back-office functions. Co-sourcing is when a firm fully controls its data processing and storage while outsourcing fund administration to third-party administrators.  

The trend of co-sourcing fund administration

Two typical approaches to fund administration are in-house and outsourcing. In-house fund administration involves handling tasks internally, which provides more control over data, but at the expense of overhead and agency costs.  

Many fund managers outsource these functions to specialised providers, allowing them to focus on core activities like portfolio management and strategy development. This 2023 Global Private Equity survey says 62% of firms outsource services to reduce costs and mitigate margin erosions. However, outsourcing requires storing data with third-party administrators, posing access challenges for fund managers. 

This gap in data management allowed co-sourcing to emerge as a trend in fund administration. Below, we explore the benefits of co-sourcing in fund administration. 

The benefits of co-sourcing in fund administration 

Improved Data Control 

Streamlining control over data provides fund managers and administrators easy access to accounting books and financial records. Additionally, regulatory compliance in fund hubs has grown increasingly stringent, demanding more reporting and transparency. Co-sourcing allows fund managers to retain control over their technology and data. It also provides data access to outsourced fund administrators handling accounting and financial tasks. It leverages data-sharing software to improve data control, accessibility and fast decision-making. 

Access to Specialised Expertise 

According to Forbes, sourcing accountants with expertise in financial services has become more challenging. 300,000 accountants in the US have resigned to seek employment with outsourcing companies, making it difficult for firms to find specialised expertise. Co-sourcing fund administrators provide expertise in financial reporting and regulatory compliance, allowing fund managers to navigate complex financial planning and analysis. 

Digitalisation 

Fund administration involves gathering data from investment activities to generate financial reports. In our previous blog, we discussed the increasing significance of technology in fund administration. Co-sourcing can leverage advanced technology solutions for data management and data analytics to improve efficiency and accuracy. By automating routine tasks and gaining insights from data, fund managers can also make data-driven decisions and identify opportunities for optimisation.  

Streamlined Efficiency 

This study shows that outsourcing fund administration can lead to better fund performance over time. This success is due to fund managers’ ability to focus on their firms’ core competencies, such as portfolio management. Co-sourcing fund administrators helps streamline the administrative and financial processes, reducing the turnaround time for reporting and compliance. It can also improve data management without the need for additional in-house staff. With reduced administrative burdens, fund managers have more time to focus on their core duties and goals. 

Cost Reduction 

The same study above linked the success in the performance of funds can be attributed to reduced costs. It reported that firms who choose to outsource allow them to focus on improving portfolio management styles.  

Co-sourcing outsources non-core functions to specialised providers, helping fund managers reduce costs while maintaining service quality. It offers flexibility to scale outsourcing needs based on fund growth, reduces overhead expenses and optimises resource allocation. 

Navigating the Risks of Co-Sourcing in Fund Administration 

• Loss of Control — Co-sourcing requires strong collaborative efforts between fund managers and administrators to execute the firm’s needs properly. Without effective systems in place, control over data and other outsourced non-core functions can be easily lost. 

• Data Privacy — Since data will be stored in-house via software, firms sharing access with different parties face looming concerns over data privacy. Robust cybersecurity infrastructures are crucial for ensuring data privacy in transactions. 

• Communication — Co-sourcing is a hybrid approach that leverages technology to perform fund administration needs. Open and transparent communication between fund managers and administrators is critical in co-sourcing.  

Co-sourcing with Bolder Group 

While co-sourcing offers numerous benefits, several key factors must be considered, especially when partnering with external fund administrators. Choosing a service provider with a strong background and specialised expertise in fund administration can quickly alleviate co-sourcing challenges. 

Bolder Group provides co-sourcing solutions for fund administration, offering tailored services that cater to individual client needs. Our fund administrators can provide personalised financial expertise while establishing open communication and a collaborative approach. Our robust cybersecurity system also ensures data privacy in our transactions. Contact our team to learn more about our fund services.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.