Co-Sourcing: An Evolution of Traditional Outsourced Fund Administration

• October 26, 2023
• Craig Arends

Fund administration continues to become more prevalent as investors and investment fund managers recognize the benefits of outsourcing their middle and back-office operations. This trend towards fund administration is driven by regulatory complexity, cost pressures, and the need for transparency and independent oversight. As a result, the demand for fund administration services has been on the rise, with a growing number of fund managers and investors turning to external providers for their experience and support.

One common concern expressed by fund managers regarding fund administration is the limited access to real-time fund data. As a result, there is a rising trend in the industry towards adopting co-sourcing, which involves fund managers forming strategic partnerships with specialized service providers.

What is co-sourcing?

Co-sourcing refers to a collaborative approach between fund managers and fund administrators. In this model, the fund administrator conducts the accounting, treasury, and reporting tasks directly within the fund manager’s software systems, as opposed to a traditional outsourced fund administration model where the fund manager relies on the fund administrator’s software systems. This allows the fund manager to retain control of and access data internally while still leveraging the experienced professionals and scalability of a fund administrator to perform their usual accounting, reporting, compliance, and investor services tasks.

Benefits of co-sourcing fund administration

• Data control — With co-sourcing, fund managers retain control over their data as it’s stored in-house. This allows for greater transparency and accessibility to real-time information.
• Streamlined processes — Compared to a multi-platform solution used in traditional outsourced fund administration, co-sourcing can streamline financial and investor reporting processes since workflows all take place within the fund manager’s software system. This reduces manual efforts and the amount of correspondence required between the fund manager and fund administrator.
• Customization — Co-sourcing allows for greater flexibility and customization. Since the fund manager retains control of the software systems, the manager can tailor the software systems setup and the workflows to their specific needs and preferences.
• Enhanced reporting and analytics — Co-sourcing can provide access to advanced reporting and analytics capabilities, enabling fund managers to gain valuable insights into fund performance for more informed decisions.
• Specialized industry knowledge — By partnering with fund administrators, fund managers can benefit from their experience and industry knowledge. This can lead to improved accuracy, compliance, and efficiency in accounting and reporting processes.
• Scalability and flexibility — As fund managers experience growth or changes in their fund structures, co-sourcing offers scalability and flexibility. Fund administrators can quickly adapt to evolving needs, whether it’s onboarding new funds, handling an increased number of transactions, or meeting complex reporting requirements.
• Cost efficiency — Although fund managers would typically incur the software costs in a co-sourcing arrangement, fund managers can still reduce operational costs by leveraging the specialized industry knowledge and scalability provided by fund administrators.
• Focus on core competencies — By offloading administrative tasks to co-sourcing partners, fund managers can redirect their time and resources towards managing their funds and investment strategies.

Co-sourcing fund administration offers a compelling option for fund managers seeking to improve operations, reduce costs, and enhance efficiency while maintaining control of their data. As the investment management industry continues to evolve, co-sourcing is becoming an increasingly attractive option for fund managers looking to stay competitive and deliver value to their investors.

While some fund managers may benefit from a co-sourcing arrangement compared to an in-house or fully outsourced option, others may find a traditional fully outsourced service to be a better fit. Fully outsourced fund administration offers many of the above benefits over an in-house option and may do so with less complexity and involvement from the fund manager. Fund managers without internal experience in system set-up, design, and data management may face additional hurdles and a loss of efficiencies in taking on the responsibility of owning and controlling their software systems. Fund managers without this level of experience may be better served in a traditional fully outsourced arrangement.

How we can help

At CLA, we have established a number of successful co-sourcing partnerships with fund managers for quite some time. We have the ability to serve a wide range of clients, including co-sourcing clients, traditional fully outsourced clients, and everything in between.

We recognize our clients have diverse technology preferences and requirements, which is why we offer a variety of industry-specific resources and custom design our fund administration services to increase the benefits of the desired technology. Contact us to get started.

Written by Andy Huss and Jon Haidet

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