Investment Management Outsourcing for Emerging Managers
Operations outsourcing by financial institutions is a trend that is fast picking up. Though bigger banks had taken a lead over other investment management firms earlier, now is the time for highly specialized firms like Investment Banks, Private Equity, Venture Capital, Real Estate, Family Offices, Hedge Funds, and Asset Management firms to take advantage of outsourcing. The reasons for the same are quite simple. It leads to cost efficiency and improvement in operational flexibility with absolutely no dilution in terms of quality. It leads to quality improvement with an experienced vendor who is working with multiple clients like you. Though it’s easy to understand how it leads to benefits for an organization on a headcount of hundreds and thousands. However most vital is the support for emerging managers.
Benefits of Outsourcing
There are multiple benefits of outsourcing for financial institutions big or small. Here is how they could benefit if they are considering outsourcing
Outsourcing is typically delivered from a low-cost country like India. India is behind western countries in terms of Purchasing Power Parity (PPP). If ten dollars can buy you a burger in New York, it might buy you a 2-bedroom flat in Delhi. I hope you get my feeble attempt at humor. A fine dining experience at the cost of a burger may be a better analogy. The point here is that you can get the same quality at a far lesser cost if it is delivered from India. Depending on your location, there is a potential of saving 30-70% of the operational costs, with virtually no impact on continuity or quality. The potential of savings is meaty for geographies like the United States, the United Kingdom, Europe, and Australia
Covid 19 has re-laid the rules of working forever. Remote work is now going to be a mainstream option even for demanding careers in investment banking and investment management. Whether the Analyst works from New York or New Delhi, there is little difference. There is little reason then, to not work with the brown guy based out of India!!
Outsourcing has low-quality connotations. Yes, outsourcing did start with low-end jobs like customer care and call centers, but that was a couple of decades ago. Now there have been waves of outsourcing and with every wave, the type and quality of outsourced work improved. After call centers, it was IT. Now it’s the turn of financial management and Research and Development that is riding the wave. Quality is better than in-house work. The reason for that is the outsourced team works with far more similar assignments than an in-house team. This is all the more important for an Emerging Manager who are still picking up the ropes of operational quality and scalability
The assignments related to fundraising, deal origination, deal execution, and due diligence require access to multiple databases. If a firm goes for signing up for each database, it ends up being a big cost bucket. With an outsourced player, these costs could be controlled as the vendor’s costs are distributed over multiple clients
Scaling up and scaling down
An emerging manager is thin on the workforce. So, when the deals come in, there are times, when the deal pipeline is more than what the current team could handle. The ad-hoc arrangement can lead to a loss of quality. Outsourcing is a perfect solution for this situation. Experienced resources are available on short notice and churn the assignments that are at the level of global quality
Multiple outsourcing models exist, where a Full-Time analyst can work with you from an offshore location like a virtual employee. Or you can subcontract the work on an hourly basis or give out a project on an ad-hoc basis. Whatever is the model, the quality of the work remains steady. You are always in control of the costs too
First Mover Advantage
Outsourcing for high-quality critical work has started to pick up. It is just a matter of time, that they would eventually be delivered from offshore locations. The companies that pick on this trend earlier have a competitive advantage over other players in terms of pricing their services. In-fact developing comfort working with teams that are dispersed across geographies is going to be a competitive advantage not only for financial services but across industries. Emerging Managers gain massively from this trend as it gives them a pricing advantage with their initial set of clients.
Magistral’s In-House Investors Database
Magistral has an in-house database, that carries records of 25000+ global Limited Partners and General Partners. This database is priced to suit the budget constraints of emerging managers. This is by far the cheapest such database. Even after being priced so low, it is an effective way to get started on reaching out to investors.
Time Zone difference
The work happens while you sleep. Not that, someone sits with a laptop beside your bed and works, but time-zone difference ensures that your operations effectively move both in the day and the night. In the day onsite teams move the work, while in the night, due to time zone differences, the offshore team moves the work. Offshore teams pick up the work from where it was left by the onsite team. Assignments effectively move at double the pace.
As these are the general benefits of outsourcing to all players, big or small. For Emerging Managers outsourcing is absolutely critical as this may be the only way to start the operations on a shoestring budget of Emerging Managers
How does outsourcing help Emerging Managers?
When Emerging Managers are starting up, money that can be spent is always an issue. Outsourcing keeps the costs low and that is exactly what is required at that stage. This is also relevant for start-ups in the investment management space.
Emerging Managers may be experienced, having worked for many years before going on their own. At the same time, they could come up with a new idea and may have limited experience in the traditional areas of fund management and fundraising. Outsourcing may bridge the gap in terms of know-how as the outsourced vendor may have helped the clients in a similar space.
An outsourcing vendor offers unmatched operational flexibility like having a resource working on a specialized assignment just for a week, or designing a pitch deck by an experienced designer in a couple of days. This flexibility is also extended when it comes to prices of services.
Emerging Managers enter a space based on a few assumptions about an industry and its potential. After entering the market, there may be a realization that potential may not be there or maybe suspect. Also, there is a need of changing tracks multiple times during the initial days in the business. Here hiring for a set requirement when the business is not established can lead to loss of flexibility.
How to go about Outsourcing?
If you have read, so far, I suggest you check our website www.magistralconsulting.com. Please feel free to write in and ask for our work samples and client references in the areas where you need support.
Magistral Consulting has helped multiple Emerging Managers in establishing their operations on shoestring budgets. The offshore team is capable to deliver projects related to the complete value chain of the investment management like fund-raising, deal origination, deal execution, and portfolio management. To schedule a discussion please visit here
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.firstname.lastname@example.org for any queries or business inquiries.