Our private capital operating model of the future suggests a flexible framework to developing a highly effective back office. Here’s the thinking behind it.
Our Halo Framework proposes implementing best practices in six key areas to build the private capital operating model of the future. If that sounds like a lot of work, remember it’s a flexible framework and not a straitjacket.
Private capital firms are at different stages of development and face different challenges. Some don’t need to incorporate every step; others may not have the means. But there’s value in taking a holistic view of an ideal operating model. It shows what can be achieved over time, even if you only need help in one or two specific areas now.
With that in mind, let’s explore the reasoning behind our 18-step approach and how each step builds toward the whole.
Private capital operations: a key differentiator
First, why did we see the need to create an ideal operating model?
We conducted a survey of more than 150 private capital leaders and discovered a general uneasiness concerning the effectiveness and scalability of operations. Most respondents said that revamping middle- and back-office operations is among the top two strategic priorities for their firm in the next two years. This indicates that operations have taken on new significance in private capital.
As firms seek scale in a world of increased oversight, growing investor scrutiny, and more complex deal-making, efficient operations have become a key differentiator.
Laying effective foundations
In response to those pressures, we propose implementing best-practice processes in six core areas. They are:
- People
- Processes
- Technology
- Partnerships
- Governance
- Strategy
Within each of those broad categories, we suggest three areas of focus. We believe private capital firms that develop efficiency in each area will lay the foundations for a highly effective operating model.
At the same time, we have consciously created a framework rather than a template. Firms can vary greatly in terms of size, strategy, investor base, and global coverage. All these factors affect operations. One size does not fit all.
For that reason, our model allows for customization beyond these 18 foundational steps. Any model goes only so far. Managers will tailor these suggestions to their own specific circumstances.
The challenges facing private capital operations
So how does our model work? You can find a full research-based rundown of the theory and methodology behind it in our complete report. To simplify, we aim to build a highly effective operating model from the ground up, by identifying the challenges private capital managers currently face and tackling them head on.
For example, 42% of our respondents say they are facing extreme difficulties finding the right operational talent. Private capital is facing an acute people problem. Though firms will face different challenges depending on where they are based, among other factors, our model suggests strategies that are applicable across the board.
In this instance, we talk about the need to hire able generalists from all backgrounds, and then develop skills and knowledge with a tailored talent management strategy. We talk about staff rotation that fully immerses employees in different value streams, creating an experience that is both wide and deep.
We propose a knowledge-exchange system that makes information sharing dynamic and ensures continuity of service, regardless of circumstance.
Building blocks to better processes
The wider point is that the six categories complement each other. For instance, most of our respondents identified issues with data and technology. Those issues won’t be solved without an effective talent management strategy, and probably by nurturing effective partnerships as well (another of our categories).
Technology naturally leads into embedding streamlined, scalable processes, because doing so requires the kind of effective data management that allows for process automation. Then, through outsourcing, governance, and strategy, our 18 steps build to an effective whole.
Having said that, it’s not all or nothing. Firms don’t need to implement every step. Some will be further along, while others will have specific challenges that take priority.
But everyone can use the framework to address issues in their operations, and gradually build a more futureproof operating model over time.
Our Halo Framework identifies and describes a next-generation fund operating framework for private capital. Download it here.
Why CSC
CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader, we work with funds of all sizes, from start-ups to the largest and most experienced fund managers in the world. Founded in 1899, CSC prides itself on being privately held and professionally managed for more than 120 years. We are the trusted partner of choice for more than 90% of the Fortune 500® and more than 70% of the PEI 300. CSC has office locations and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia Pacific, and the Middle East. We are a global company capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve. We are the business behind business®. Learn more at cscgfm.com.