Insource with Service Provider Oversight—very large funds with US$5 billion plus in assets typically adopt this model

Insource/Outsource—uses their own systems but leans on service providers for key capabilities

Outsource—funds without a robust operational platform need a service provider partner


Manager uses their own data warehouse, systems and middle and back office to solve for diverse reporting and transparency schema

Manager has their own systems but may have gaps in data and a smaller middle and back office staff

Manager relies entirely on third-party providers and has a very lean operational staff

Required for Success

A comprehensive data warehouse should allow managers to file regulatory reports, compile risk information that will drive portions of regulatory reporting, streamline investor communication and allow investors the ability to accurately benchmark a manager's performance versus segment peers

Typically need to leverage thirdparty service providers as official books and records but maintain shadow books and records and ticand- tie to their providers to ensure consistency, managing breaks, etc. as they come up

Given some scale, managers can make this model work over the medium term


High quality, blue-chip service provider partners can validate a manager's process, but the manager ultimately maintains very strong control over the process

The ability to scale, given a wellrounded service provider selection; also, this approach defrays some of the cost of administration to investors, thus freeing up some management company fee revenue to augment investment staff and focus on delivering investor alpha

Investors will push for more— and more independent— operational staff because of the check and balance function that the middle and back office provides, an important key condition to institutional growth


Manager will need to continually invest in people and systems necessary to fulfilling these multiple requirements; scalability also becomes an issue as new products are launched and the organization needs to accommodate a new product type requiring different expertise (e.g., bank loan product, registered product, hybrid fund product, etc.)

Slightly less control, some opportunity for duplication; funds adopting this model need to work with a provider to address ideal operational structure

A double-edged sword; depending on fund size it can be difficult for investors to absorb these costs because they subtract from fund performance