Tag Archives: Hedge Fund Operations Outsourcing

Every great fund starts with a vision. A unique strategy, an untapped market, a brilliant thesis. You, the fund manager, are the architect of that vision. Your focus is singular: producing stellar returns throughout its prestigious legacy.

You plant a flag in Delaware-the undisputed gold standard for private equity, VC, and hedge funds. It’s an apt choice. With business-friendly laws and major tax advantages, this has become the bedrock of investor confidence. Funds birthed here manage more than $3.8 trillion of capital for a reason.

Delaware Fund - Outsourced Fund Operations

Delaware Fund – Outsourced Fund Operations

Your plans are well-laid out. But after getting all set up, a different reality drags itself into your view. Placing your fund creation between your eyes and spirit proves not a straightforward matter. It’s a mountain-best climb with expert outsourced fund operations.

Why Delaware? The Tax-Friendly Foundation of Fund Success

Delaware is certainly the jurisdiction of choice for investment funds for very good reasons. Its legal setup so far has been providing so many advantages that it has indeed become the preferred home for fund formation. Here are some of the main reasons why Delaware continues to be in great demand:

Business-Friendly Laws

Domestic and international funds choose Delaware LP and LLC structures for their flexibility, privacy, and robust asset protection. By 2024, managers incorporated more than 55 % of all U.S. private equity and venture capital funds in Delaware (Delaware Division of Corporations, 2024).

Tax Advantages

Delaware eliminates state corporate tax on out-of-state income, charges no sales tax, and grants investment entities favorable treatment. Thanks to these incentives, managers have registered over 70 % of U.S. hedge funds in Delaware (National Venture Capital Association, 2024).

Investor Confidence

Delaware-based funds now manage roughly $3.8 trillion in capital, earning the trust of investors worldwide (Delaware Division of Corporations, 2024).

Industry Trends & Insights

Some of the industry trends that underline the importance of fund operation outsourcing include the following:

Outsourced Fund Operations - Industry Trends & Insights

Outsourced Fund Operations – Industry Trends & Insights

Globalization of Operations

Delaware funds increasingly serve international LPs, and outsourced partners help navigate cross-border compliance and tax complexities.

Tech-Enabled Administration

Leading firms now use AI and automation for faster, more accurate NAV calculations, reconciliations, and investor communications.

Data Security

In light of rising cyber risks, Delaware’s confidentiality laws combined with secure outsourced platforms provide peace of mind. The 2024 Cybersecurity & Data Protection in Fund Administration Report found that 63% of firms now prioritize data security as a core part of their outsourcing strategy.

Speed to Launch

With expert support, Delaware funds can go live in just 4-6 weeks, critical for managers seeking a first-mover advantage. According to a report 2024 data, 40% of funds now launch within 6 weeks of formation.

Growing Adoption

Over 55% of global asset managers now outsource some or all back-office operations.

The Power of Outsourced Fund Operations

The most successful fund managers of 2025 have a secret weapon: they leverage a partner for expert outsourced fund operations. This strategic shift allows them to conquer the operational mountain and focus entirely on performance.

The core value of outsourced fund operations: It does not merely save you money; it sells you back your most valuable asset: time, and truly terpenes the expertise into the fund’s composition.

Here’s how outsourced fund operations change the game:

Navigate the Maze with an Expert Guide

Instead of dealing with compliance issues, your partner ensures a smooth launch in 4–6 weeks, a key feature of premier outsourced fund operations.

Escape the Vortex with Flawless Execution

Imagine a world where every administrative task is executed with precision and efficiency. For a partner of this caliber, it cannot be otherwise!

Build Unshakable Trust through Transparency

With cutting-edge platforms, your partner in outsourced fund operations delivers the real-time reporting that modern investors demand.

Future-Proof Your Fund with the Power to Scale

As your fund grows, your operational support scales with you. 79% of fund managers now adopt these flexible models to manage growth effectively.

How Magistral Becomes Your Co-Pilot

At Magistral Consulting, an end-of-end solution is offered to fund managers. The services offered constitute specialized outsourced fund operations that take care of all aspects of your fund’s operations to ensure smooth functioning. Services will enable the funds to be launched, grown, and scaled efficiently, so you can focus on generating returns and building a legacy.

Comprehensive Fund Administration

We handle all the operational components so that your Fund may continue to operate efficiently, real-time NAV, investor reporting, and capital call management are some of them. Our team ensures that these critical functions are executed with precision, so you can maintain focus on the strategic aspects of your fund while we handle the day-to-day operations.

Regulatory & Compliance Fortress

Navigating SEC filings and tax compliance can be overwhelming, especially in a regulatory landscape that is constantly changing. Magistral Consulting offers expert handling of such matters, to make certain that your fund remains in compliance and that all legal exposures are kept out of harm’s way. We serve as a regulatory fortress before you, mitigating all risks while making sure that your operations are efficient and in accordance with legal requirements.

Scalable, Flexible Support

As the operational needs of a fund change with its growth, we, therefore, offer scalable and flexible support befitting the fund’s size and complexity. Whether you are a first-time manager or an established portfolio holder, our services grow with you and maintain operational efficiency at every stage.

Cutting-Edge Technology

Technology today plays a big role in operational success in this fast-paced environment. We use secure cloud environments and automation to provide real-time reporting, safe data storage, and smooth communication. Our technology allows you to get fund information in real-time from anywhere in the world while maintaining the highest levels of data security. Due to AI-powered analytics and advanced reporting tools, there is complete control over and visibility to be obtained of what goes on with the assets.

Proven Cost Efficiency

Outsourced fund operations to Magistral Consulting provides significant cost savings, with our clients seeing a reduction in operational costs by an average of 25%. In other words, with a blend of our team’s expertise and technology, you can keep overhead costs lean, instead choosing to focus on the things that really matter, whetting your investment appetite. Our solution is to give you maximum value at the most efficient costs, therefore offering you a competitive advantage without lowering any quality standards.

Case Study

A Story of Speed and Success – The $300M Launch

Background

A first-time private equity manager with a brilliant fintech thesis raised $300 million in commitments. They wanted to focus on sourcing deals and needed expert help with the entity formation, regulatory filings, and investor reporting.

The manager partnered with Magistral Consulting to navigate the operational complexities and ensure a timely launch.

The Challenge

Key operational tasks, such as forming the fund entity, meeting regulatory requirements, and ensuring accurate investor reporting, need to be handled seamlessly and efficiently. The manager required a trusted partner to manage these while they focused on deal sourcing.

The Solution

Magistral Consulting provided:

  • Entity Formation: Ensuring compliance with Delaware regulations.
  • Regulatory Filings: SEC and tax filings timely done.
  • Investor Reporting: Transparent investor reports in real time.

With these outsourced fund operations tasks in expert hands, the manager could concentrate on their core strategy.

The Result

The fund was launched in just six weeks, impressing investors and gaining immediate momentum. The fund manager avoided common launch delays and established a solid operational foundation.

 

About Magistral Consulting

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 Modelling, Portfolio Management, and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com

They involve delegating key back-office tasks—like fund admin, compliance, and reporting—to experts, allowing fund managers to stay focused on investment strategy.

With the right partner, a Delaware fund can launch in just 4–6 weeks—crucial for first-mover advantage and early investor momentum.

Without expert support, fund managers often face delays in fund launch, compliance risks, reporting errors, and high overhead costs—taking time and focus away from their core investment strategy.

Rising complexity, tighter compliance standards, and investor demand for transparency are pushing fund managers to adopt outsourcing. It offers speed, accuracy, and flexibility without increasing internal overhead.

Magistral Consulting

Introduction to Hedge Fund Outsourcing

Operations Outsourcing for Hedge Funds is slowly becoming a viable proposition to improve analytical excellence and reduce the operations’ cost. Almost all types of hedge funds can benefit from outsourcing and research support services. It aids the smooth functioning of Hedge Fund operations. Hedge Fund outsourcing not only helps in reducing operations cost, but it is also immensely helpful in raising the analytical standards of the fund.

Hedge Funds are investment vehicles that invest in stocks to give superlative returns to their investors. They follow multiple strategies like long-short equity, market neutral, merger arbitrage, convertible arbitrage, event-driven, credit, fixed income arbitrage, global macro, Short only, and Quantitative. Here is what these strategies are and what could be outsourced by each strategy

Long-Short Equity Hedge Fund

This is by far the most common form of Hedge Funds. Here the fund manager takes long and short positions on the stocks where he believes the stock will go up and the stock will go down respectively. Ideally, long positions should match short positions, so that risk from overall market movements is hedged. However, in practice, the ratio of long and short positions varies with every fund manager. Generally, there are more long positions than short ones. Taking long positions on expected winners acts as collateral to short positions in the expected losers

Long-short Equity is an extension of pairs trading, where a fund manager takes opposing positions in similar stocks in the same industry. If a stock looks overvalued as compared to another in the same industry, the fund manager goes short on the overvalued stock and long on the undervalued one. This relative positioning hedges the risks of market fluctuations in either direction

Hedge Fund outsourcing in long-short equity funds have reduced operations cost by 40-70% and at the same time is known to bring the new skills to the fold of the fund.

What could be Outsourced

Here is what could be outsourced conveniently in a Long-Short Equity Hedge Fund

-Equity Research

-Middle Office

-Fund Administration and Accounting

-Data Management (Collection, Cleansing, Automating and Templatizing for Insights)

-Industry Research

Market Neutral Hedge Funds

Market neutral hedge funds are long-short equity funds that hedge the value of long and short positions. The value and volume of long positions match the value and volume of short positions. This ensures that the risks of market movement are minimized. That also means that the returns from such hedge funds are far moderated than the funds that are biased towards long positions. As its type of a long-short equity fund, outsourcing carries similar potential.

Here is what could be outsourced conveniently in a Market Neutral Hedge Fund

-Equity Research

-Middle Office

-Fund Administration and Accounting

-Data Management (Collection, Cleansing, Automating and Templatizing for Insights)

-Industry Research

Merger Arbitrage Hedge Funds

This is a unique kind of event-driven hedge funds that play on a merger event. Whenever a merger event is announced, the fund manager buys the shares in the target company and shorts the shares of the acquiring company in the prescribed share swap ratio. It creates a spread that incentivizes the fund if the merger goes through. This is however a risky proposition and fund loses in case the merger does not go through due to any regulatory or internal reasons.

Apart from usual activities, here is what could be outsourced:

-News tracking related to M&A

-Merger Modeling

-Valuations

-Industry Reports

Convertible Arbitrage Hedge Funds

Convertible Arbitrage is securities that combine bonds and equity. Fund Managers are usually long on bonds and short on the equity that they convert to. Fund managers maintain a delta neutral position throughout. So if the equity value goes down, they need to buy more equity and hedge more if the stock price goes up. It forces fund managers to buy low and sell high. These funds return superior performance if there is volatility in the market.

There are multiple facets of operations that could be outsourced here

Event-Driven and Credit Hedge Funds

This is another unique type of hedge fund that thrives on special situations like bankruptcy. These funds focus on acquiring senior debt that gets paid over other kinds of debts in case of bankruptcy. Credit Hedge Fund on the other hand looks for arbitrage between senior and junior debt from the same issuer. They also trade between securities of different qualities from different issuers

Apart from regular operational aspects, here is what could be outsourced here

-Research around the events that allow the opportunity to kick in for the Hedge Fund

Fixed Income Arbitrage Hedge Funds

These Hedge Funds buy securities on one market and sell them on another market and make money from the arbitrage existing between the two market prices of the securities.

Global Macro based Hedge Funds

Some Hedge Fund focus on macro trends around countries, markets, commodities, trades, etc. to bet on different investment and trade from opportunities that these macro changes may throw-in.

Global macro changes research could be outsourced here.

Short Only Hedge Funds

These Hedge Funds bet on the failure of a company. They look for companies that may have unsustainable business models and go short on them. It’s the short part of the Long-Short Equity Hedge Fund.

All the elements of the Long-Short Hedge Fund could be outsourced.

Quantitative Hedge Funds

Quant based Hedge Funds solely depend on mathematical models to make buy or sell decisions. Their algorithms are obscure and they use tools like Machine Learning, Artificial Intelligence, High-Frequency Trading, and other technological tools to produce returns.

All regular activities related to Hedge Funds like Administration could be outsourced here.

Here are the activities that Hedge Funds commonly outsource:

Hedge Fund Outsourcing Activities

Activities that are commonly outsourced by Hedge Funds

Equity Research Outsourcing/ Hedge Fund Outsourcing

Equity Research Outsourcing is by far the most important element of Hedge Fund Outsourcing. Equity Research outsourcing helps the in-house team track more stocks and sometimes to give more depth to the same set of stocks that are tracked by the fund. Fundamental and technical equity research, both could be outsourced effectively.  DCF models are prepared for each stock and then tracked progressively for any changes or news related to that particular stock. Earnings call transcripts are duly recorded and analyzed for a recommendation. A short 2-3-page report is prepared for every stock with the overall recommendation and the rationale for the recommendations. Hedge Fund Research tasks are completed seamlessly with the offshore team acting as a natural extension to the in-house team

Markets/Industry Research

If an investment theme is weaved around a specific country, industry or an emerging theme, its imperative to track that industry, market, or theme closely and regularly. A market is tracked for any macro-level changes like new tech, change in regulations, key movements, trends, etc periodically say quarterly. Several indices are also tracked regarding this. It’s quite common to track 14 S&P industries or some of its components therein. For index hedge funds, the performance of various indices is tracked

Typical examples may be tracking the insurance market in North Africa or metals and mining in South America. If your fund has a bigger interest in stocks that are based in those markets, it makes sense to have the key metrics of these industries reported to you regularly.

Manager Research

This is important for Fund of Funds. As part of their investment strategy, they are continuously on a look-out for hedge funds that fulfill a given set of criteria like vintage, past returns, investment themes, etc. Each fund is analyzed for risk-adjusted returns over a fairly long period like 10 years or so to find out the most suitable funds.

This requires getting in touch with multiple funds across the globe, collecting information, analyzing it, and then presenting holistic recommendations on where the fund stands. All of this could be outsourced.

Bond and Other Fixed Income Instruments Research

For hedge funds that operate on the lines of fixed income, the research is done that is related to sovereign and government bonds, corporate bonds, fixed income instruments, and several other investment options like that.

Fund Administration and Accounting

Fund Administration is outsourced for activities related to accounting, bookkeeping, and general administration of the funds. This also forms part of Hedge Fund Middle Office Outsourcing. Some bookkeeping aspects also come under Hedge Funds’ back-office outsourcing. It keeps the documentation trail of all the trades, makes sure all operational processes are followed and exceptions are duly approved. Hedge Fund books are maintained in the prescribed format. It also takes care of investor communications like portfolio allocations, portfolio valuation, capital calls, taxes, profits, fees, NAV, portfolio, etc. Customized Hedge Fund newsletters for investors is sometimes prepared and sent separately to current and potential investors.

Investor Relations

This is a subset of the Fund Administration process. However, some elements of organic investors’ reach out could be outsourced as well. A tool or a portal for all the investors with all relevant information for them is prepared for seamless and updated communication. This is communication related to the Hedge Fund investments made by the investors. This might be customized to carry Hedge Fund news, Strategy, Returns, and Performance. In the case of Fund of Funds, the performance of all the underlying funds is covered.

About Magistral

Magistral has helped multiple hedge funds in outsourcing operations. You can check www.magistralconsulting.com for more details.

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for queries on this article or business inquiries in general.

 

Magistral Consulting

Magistral Consulting (www.magistralconsulting.com) was approached by a Family Office for an assignment related to finalizing a Long-Short Equity Hedge Fund. Our assignment was to find a fund that generated alpha over a long period with minimal risk. We required the fund to focus on a specific global region, meet minimum investment values, have a threshold AUM, and a defined vintage. Here are the steps that we took to identify the fund:

Secondary Research for all best performing Asset Managers in the region:

We searched the internet for all the best performing Asset Managers in the region. It ended in us drawing a list of more than a hundred Asset Managers in the region. This was pretty much the universe of Asset Managers in that specific region.

Finding the fund satisfying the criteria with the Asset Managers:

We reached out to all the Asset Managers for the funds that satisfied our criteria (like minimums, AUMs, regional focus, etc.). This reach-out was done over the emails and several calls.

Information gathering from all relevant Funds:

We asked for Net Returns MoM since inception for all the funds that satisfied our initial criteria. This information was fed into our analytics model that calculated all fund performance parameters like Cumulative Returns, Annualized Returns, Standard Deviation, Sharpe Ratio, Sortino Ratio, Max Drawdowns, Average Up-capture, Index Capture, Average Down Capture, Index Correlations, and several other objective and subjective parameters. This process took weeks as many Fund Managers needed support from us in calculating the metrics, some needed multiple follow-ups for the information to be provided to us. The picture became clearer when all returns information was fed into the model separating the performing funds from the non-performing ones. The robust model also ensured proper consideration of risks taken by the fund manager to deliver the returns. Best performing funds were shortlisted for the due diligence.

Due-Diligence of shortlisted funds:

Due diligence involved preparing a detailed report running into tens of pages analyzing all operational aspects of the Asset Manager and the fund. We collected and analyzed information on parameters including Human Resources, Compliance Frameworks, IT systems, and Business Continuity plans. for the Asset Manager or the Management company. For funds, we collected information related to Legal framework and structure, Transactions, Valuations and Accounting, Risk Management and Monitoring, Service Providers (Admin, PB, Auditor, etc.), Ownership Structures, Current Investors and their holdings, Key personnel bio and their relevant experience, Exception to general allocation rules and several other parameters.

Evaluation of fund performance on all parameters:

We created a sanity checklist and designed a questionnaire to collect information from funds during meetings. After gathering verbal inputs, we analyzed documentary proofs to assess the depth of each parameter. Based on the numbers, documentation, and evidence, we assigned a rating to each fund parameter. Considering the weightage and performance across all parameters, we recommended one fund for investment.

This was one of the examples where the Magistral team worked closely with the client team to arrive at a recommendation that moved millions across a cross-border transaction, into a fund that has a solid track record of providing superlative returns when compared to others.

We are in the process of doing due diligence for several other funds as I write this.

The Author is the CEO of Magistral Consulting (www.magistralconsulting.com), a research and analytics firm, that helps Family Offices in identifying best performing fund managers. For any inquiries you can reach out to him at Prabhash.choudhary@magistralconsulting.com

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