The PE industry has grown substantially over the last few years, allowing only the most intelligent investors to succeed in this extremely competitive market. The best thing about private equity is that investors can achieve high ROI with minimal co-relation with indices. The only drawback is that it requires a longer waiting time to earn returns and has less liquidity than publicly listed shares. However, private equity teams must center their attention on trading, as their primary function is to generate profit. Keeping that into account, many private equity firms outsource their business’s non-investment functions to keep their focus solely on investment functions. Here, we explain how private equity outsourcing can help PE teams.
Types of PE Services That an Outsourcing Partner can Handle
With the ever-changing investor and regulatory requirements, a private equity company needs timely and accurate information to deliver value to its investors. Outsourcing partners private PE teams end-to-end operating models that best serve the portfolio company’s business needs. These are the different types of services an outsourcing partner can handle for a PE firm:
- Professional Services: These encompass services like digital marketing, bookkeeping, accounting, and other repetitive activities.
- IT Services: These include IT infrastructure and operational management services like ensuring data security, developing websites and apps, and updating licenses when required.
- Process-Specific Services: These include product and service improvement through data analysis and research, top talent recruitment, legal processes, etc.
- Business Processes: These processes include customer service, lead generation, and other repetitive operations.
- Project Services: Private equity may outsource particular projects due to a lack of time, funds, or skills. These include web design, marketing, content creation, and tech-related operations.
- Financial Services: Private equity outsourcing partners specializing in accounting, financial reporting, compliance and regulatory services may implement tools and technology to increase a PE team’s productivity and improve the overall system.
Benefits of Outsourcing for a PE Team
PE firms are increasingly outsourcing their administration operations to experts to add value to investor relations and assets. Outsourcing to a third party is the best solution to getting a competitive edge and delivering value to the investors. Private equity outsourcing produces long-lasting benefits, including the following:
The Advantage of Skill: Small PE teams usually perform private equity processes. All the team members may not be skilled and experienced in performing the tasks they are handling. A lack of skill leads to inefficient business operations, which often results in reduced profit and loss of business. Outsourcing processes to specialized and experienced partners give access to their skills, improving their performance and accelerating their decision-making.
Cost Cutting: Hiring in-house teams and keeping them updated with the latest skills and equipment requires significant capital. Outsourcing the processes brings considerable cost savings based on the fund operations’ size and location. This means reduced costs and higher profits for the PE teams, which they may use to serve their clients better.
Extended Team of Experts: Outsourcing partners act as a PE firm’s extended team working on a plug-and-play business model. The PE team is free to ramp up if required and fall back when not. For instance, a PE team may need more analysts and experts just before an investment and fewer of them when the workload reduces. Therefore, a PE team can optimize its costs according to the workload.
The Advantage of Time Zone: By outsourcing the operations to a partner in another country, the PE team can complete its work at a double pace. When it leaves work in the evening, the team can drop a message to its extended team in another country to carry out further work. Similarly, the outsourcing team completes and drops the project in their evening, and the client finds it in their morning to continue working on it. Hence, jobs move at a double speed, literally day and night.
Confidentiality: Due diligence does not happen with the target’s knowledge always. Sometimes, it requires speed and confidentiality. Performing due diligence in-house is difficult, which an outsourcing player can do without leaking the interested party’s name.
Private equity outsourcing helps a PE team stay in control of its operations while staying focused on its investment strategies. As a result, it can maximize its investment returns using the most competitive investment managers by outsourcing.