Outsource to elevate fund operations

Leveraging teams, systems and technology to gain a competitive edge

Feb 29, 2024

Key takeaways

Build a robust operational infrastructure that stands the test of time.

Use an integrated technology stack to centralize and unify investor data and tax reporting.

Leverage data and various performance metrics to make informed decisions.

Finance transformation PartnerSight Real estate Real estate funds

As you build your company’s strategy, internal operations and infrastructure, it’s important to self-evaluate your strengths and determine where to best allocate your resources.

You must construct a robust digital infrastructure for optimal results, create established processes and workflows, and leverage third-party providers. If your main objective is dealmaking, outsourcing your fund administration would free up resources to focus on core competencies (i.e., deal sourcing and fundraising). Investors want to see that you’ve successfully established an institutional-grade infrastructure capable of supporting technology solutions and operational processes.

An organized back office is key

Avoiding a disorganized back office is increasingly critical in today's business landscape. Employing advanced technology is not just advantageous but imperative for enhanced operational efficiency. A chaotic back office, with scattered investor portals, disparate accounting software systems and diverse tax reporting sources, underscores the need for an integrated technology stack. This ensures efficiency and facilitates seamless integration with advanced workflow automation. Scott Helberg, a real estate tax partner for RSM US LLP, emphasizes, “Operating off one source of truth is vital for decision making in an organization. You could pull a report from your property managers stating one thing, and a different report from your back office that states something entirely different. Reconciling conflicting reports is a time-consuming endeavor, detracting from more value-added activities.”

Building the right team and infrastructure pays significant dividends

Emerging fund managers must focus on securing capital, sourcing new deals and reevaluating exit strategies instead of evaluating and implementing the latest technology. Lauren Gerdes, a real estate senior analyst and senior manager for RSM, says, “Having an integrated technology platform takes away the complexities of back-office administration and allows fund managers more time to focus on providing returns to their investors and securing more deals.” 

Self-evaluate your organization to determine what can be outsourced

As you grow your company, examine where you spend your resources and time. Emerging managers should focus on investment management, deal origination and other core responsibilities. As you scale your business, outsourcing tasks that don’t directly bring revenue in the door should be a priority, such as back-office bookkeeping, cybersecurity and fund accounting. Real estate fund managers can also benefit from outsourcing valuation services to a third-party provider. Amid declining transaction volumes, determining portfolio values becomes challenging. Outsourcing valuations based on current market conditions and lease assumptions provides fund managers with a reliable net-asset-value indicator for investors. In a year with minimal trading activity, entrusting valuation to an independent third party instills confidence in investors and offers an external perspective, mitigating biases and enabling collaboration with industry experts.

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Your competitive advantage: Leveraging new technology and data

Investing time in understanding and utilizing your data not only provides flexibility in marketing your fund but is also essential for success. Investors expect readily available data on their returns and transparency in the fund's overall performance. While emerging managers may lack large in-house tax departments, they can benefit from digital solutions and detailed knowledge to meet complex tax compliance requirements, minimize risks and inefficiencies, and support business objectives with insights.

Speed, quality and transparency top the list of technology must-haves for finance and tax executives tasked with maximizing their investors’ returns. As investors increasingly rely on insights derived from data, digital tools extending beyond basic tax compliance have gained significant value. Purpose-built applications automating and analyzing data have become foundational for informed decision making and sustainable growth.

Helberg says, “By utilizing technology and better organizing your tax data, you can provide quicker information to your investors and internal team regarding evaluating dispositions. You can quickly see the impact it could have on cash returns due to items like withholding or composite payments.

A CFO’s wish list: Achieve faster fund tax compliance filing and reporting

With tax software platforms, private equity funds have the real-time insights they need for smarter investment decision making.

The takeaway

Fund administration is a complex, time-consuming job. Fund managers—both emerging and seasoned—who adopt an “I can do it all by myself” mentality experience more operational challenges. Aligning people, processes, data and technology can set your company apart. Look for experienced advisors who can help you understand the industry from a different viewpoint, keep you updated on best practices, and inform you of the trends and needs of investors. Next-generation fund administration services can make the difference between running a chaotic back office or a well-oiled machine with cutting-edge technology.

RSM contributors