With the rise of sophisticated investment strategies, new regulatory demands, and an increasingly global investor base, private market firms are under pressure to ensure their infrastructure can handle this complex investment environment. In contrast to in-house operating models, outsourcing is offering private markets firms digital-led, highly adaptable solutions.
The slowdown in private markets deal-making in recent years has led to a record build-up of dry powder which accelerated in the first half of 2024. According to S&P Global Market Intelligence and Preqin data[1], funds held a record $2.62 trillion of uncommitted capital as of mid-July, adding $49.44 billion to their collective cash reserves in the six months since December 2023. But an uptick in deal activity the first half of the year has raised hopes for continued improvement, according to KPMG, and the opportunity for private equity to “chip away at the mountain of dry powder.”
CSC’s own research, carried out in Q1 2024 among 400 senior private markets professionals, also found a largely positive sentiment towards market growth. Across asset classes and regions, more than one quarter (29%) of respondents said market conditions will improve in less than one year or that it’s already happening. Those working in real assets were more optimistic than those in other asset classes, with 35% believing conditions are improving or will do so in less than a year.
At CSC, we have seen that as private markets have grown their influence has contributed to making the underlying alternative asset classes even more complex. Transactions increasingly involve intricate, cross-border deal structures, diverse investor profiles, and stringent regulatory, reporting and disclosure requirements.
For instance, as we detail in a separate blog, the updated Alternative Investment Fund Managers Directive 2.0 represents more than just an update to existing regulations. It’s a strategic overhaul. Mandating clear and concise labelling of investment strategies and underlying assets, the focus on transparency will increase the compliance burden on fund managers.
The challenge: inflexible operating models hinder fund managers
With the rise of complex investment strategies, new regulatory demands, and an increasingly global investor base, private market firms are under pressure to ensure their infrastructure can handle this dynamic environment. An inflexible operating model can hinder private fund managers in a world where flexibility can be key to seizing new opportunities and maintaining a competitive advantage.
Indeed, in today’s hyper-competitive market, flexible infrastructure is not just a nice-to-have but a mandatory component for scaling and driving success.
Infrastructure flexibility allows firms to quickly adapt to new regulations without overhauling their entire operational framework. Likewise, as firms grow and diversify their portfolios, their infrastructure must scale accordingly—a flexible system supports growth by seamlessly accommodating new asset classes, fund structures, and geographies without the need for extensive reconfiguration.
Customization also becomes more straightforward. Investors in alternative asset classes often have specific needs and expectations. A flexible infrastructure allows firms to tailor their services, reporting, and communication to meet these demands, thereby enhancing investor satisfaction and retention.
The solution: outsourcing offers cost-effective, highly adaptable outcomes
At the heart of the issue is the fact that many operating models for private markets firms are still managed entirely in-house and built with a focus on a single asset class in a single jurisdiction. This means they are necessarily less flexible and slower to adapt to new demand and market developments. The static nature of such systems can lead to inefficiencies, errors, and increased operational risks.
In contrast to in-house models, outsourcing offers private markets firms end-to-end, cost-effective, highly adaptable solutions and functionalities. These include:
- Cloud-based solutions: Leveraging cloud technology can provide the scalability and flexibility needed to manage complex operations. Cloud-based systems allow for seamless updates, easy integration with other platforms, and access to data and applications from anywhere in the world.
- Modular technology platforms: Implementing a modular approach to technology allows firms to add or remove components as needed, enabling them to adapt to new asset classes or investor requirements without disrupting existing operations.
- Data integration and analytics: Infrastructure must be capable of integrating data from multiple sources and using advanced analytics to generate actionable insights. This capability is essential for making informed investment decisions and meeting investor expectations.
- Automation and artificial intelligence (AI): Incorporating automation and AI into your infrastructure can streamline operations, reduce manual errors, and free up resources for more strategic activities. Such technologies are already allowing firms to quickly adapt to changes in the market.
Talk to CSC about customized, flexible operating models
By working with an outsourcing partner to build a customized, flexible operating model, managers can realize tangible benefits. Firms that leverage outsourcing partners to build flexible infrastructures position themselves to better manage risks, capitalize on new opportunities, and deliver superior results to their investors.
CSC has been working with private markets firms for many years, delivering flexible outsourced solutions. We’ve kept pace with the rapid rise of new technologies, functionalities, and operating processes—meaning our clients don’t need to take on significant cost and risk themselves.
We understand deeply the importance of flexibility in managing private market operations. Our suite of services is designed to provide the adaptability and support that firms need to thrive in this complex landscape. Whether you’re managing private equity, real estate, or other alternative investments, we can help you build the infrastructure you need to stay ahead of the curve.
For more information on how CSC can help, visit our fund solutions page to learn more.
[1] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-dry-powder-growth-accelerated-in-h1-2024-82385822
