Launching a New Fund? Let the Investors Know You’re Outsourcing.

May 29, 2020 - Stephen Van de Wetering

Launching a New Fund

Launching a new fund can be both exciting and nerve-racking. You might have broken away from a larger firm, convinced you could do things better on your own. More power to you.

But now the pressure is on to attract investors and deliver. On paper, the plan looked doable, but now as you prepare to follow through, challenges emerge:

1. “How do I convince investors to join my fund?”

2. “Will I have a winning strategy?”

And this is a situation where outsourcing may help.

You might be thinking:

1. “How does outsourcing help me?”

2. “And why should I let the investors know I’m outsourcing? Why would they even care?”

The answer to both questions is fairly simple when you think about it.

How Outsourcing Can Help Your New Fund

1. Outsourcing lets you focus on your core competencies. You don’t have to spend time focusing on areas that not only take time out of your day, but also in areas you lack the relative expertise in.

2. It may reduce costs by not having to do the work in-house.

3. Third-party providers should have the resources and know-how to deliver greater efficiency, and depending on their locations of operation and flexibility, they can provide custom services on an as-needed basis at any time of the day.

Empaxis, for example, helps fund managers by handling their middle- and back-office activity. In addition, our web-based turnkey asset management platform, TAMP1, provides a single place to store all documents and data, as well as view reconciliation and performance reports, all taken care of by Empaxis.

Why Your Investors Should Know You Outsource

1. As a fund manager, letting investors know you are outsourcing operational-related work shows you are 100% committed to the task at hand: investing.

Managing a fund during the coronavirus is an uphill battle, but the challenges are not entirely insurmountable. There are hedge funds that have had success, and if you want to be in that group, you should make sure you are devoting all effort in areas that lead to higher performance.

2. Your honesty and openness will open the door to better relations with the investors. You are proud enough to boast of your investing acumen, but also humble enough to admit areas your relative non-strengths.

And by enlisting the services of an outsourcing provider that can do the job at a high level, you are reinforcing to them a commitment to excellence in all aspects of your organization.

You are not misleading investors into thinking that you have everything under control, yet behind the scenes, you’re sweating and scrambling to generate performance reports.

If you’ve spent your career dealing exclusively with the investments side of the business, then that’s clearly your area of expertise.

When starting your own fund, you now have to think about the operational side of things, which may have never been your focus before. Even if you have experience, ask yourself these two questions:

  1. Are you launching a new fund because of your interest and expertise in investments or operations?
  2. Between investments and operations, which of the two activities will actively generate revenue for your firm?

It’s safe to say for question 1, the answer is investments.

And for question 2, the only answer there could be is investments.

So if your interest and expertise are in investments, and if investment activity generates revenue and operations doesn’t, why not outsource something like operations, among other functions?

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