InvestorQ : Do private equity firms outsource portfolio monitoring services?
Ria Jain made post

Do private equity firms outsource portfolio monitoring services?

3 months ago

As the traditional model of a fixed management fee of the AUM comes under strain, private equity firms have been looking for alternatives to bring down the costs. So, one can fairly estimate that a lot of firms have been outsourcing their portfolio monitoring services in a bid to bring down costs and be more competitive with traditional investment banks.

If it is for private equity that gets involved hands-on in the operations of its portfolio companies, it makes all the sense to establish a ‘Centre of Excellence’ for all the work related to Strategy, Research, Data Analytics, Procurement, and Digital Marketing to be aggregated at one place for all the portfolio companies. If that place is in a country where costs are low, it brings in massive cost savings as compared to having similar functions separately in all portfolio companies. Also, assignments can be prioritized as per board meetings.

Any project that worked in a given portfolio company can be quickly initiated for another portfolio company as the team is centralized. The shift to outsourcing is also being driven by more complicated investment strategies, higher flows into private equity, the need among asset owners for more accurate and timely valuation, and more domestic and international regulations. Plus, institutional investors like pension funds, in their requests for proposals from private equity managers, are including more detailed questions on how the managers handle their back-office functions.