Is a functional approach to outsourcing the way forward?

CFOs and finance leaders are under growing pressure to reduce administrative costs while managing increasingly complex operations. Since 2008, the financial landscape has changed significantly. Portfolios have become more diversified, the number of funds and Special Purpose Vehicles (SPV) has increased, and regulatory requirements have expanded. At the same time, investors demand greater transparency and faster reporting, while fund managers require more detailed financial projections, budgets, and scenario analyses to navigate market uncertainties.

Outsourcing has long been seen as a solution to these challenges, enabling firms to focus on transactions, structuring, and strategic finance while gaining access to specialized expertise, technology infrastructure and economies of scale. However, many now question whether outsourcing is delivering the expected cost savings and operational efficiencies. Service providers have struggled to become a true extension of the fund manager’s finance function, often operating in silos rather than fully integrating into the fund’s operating model. A more functional approach to outsourcing aims to address this by aligning outsourced services more closely with the fund’s strategic and financial objectives, ensuring deeper collaboration and greater long-term value.

Despite advances in outsourcing, finance functions remain fragmented, weighed down by inefficient process-driven models, unintegrated IT systems, and a focus on compliance rather than performance. As AI and automation increasingly threaten to replace transactional roles, outsourcing must evolve or risk becoming obsolete.

For years, outsourcing models have primarily focused on transactional processes at the SPV level or have been structured around geographic segmentation, leading to fragmented operations. The dominant approach has been process-based outsourcing, where tasks such as Procure-to-Pay (P2P) or Record-to-Report (R2R) are outsourced in isolation. While this has provided some efficiency gains, it has also resulted in duplicated efforts, inconsistent reporting, and a lack of fund-level oversight. Finance functions remain disconnected, with service providers operating in silos rather than contributing to a cohesive financial strategy. The failure of this approach has highlighted the need for a more integrated and scalable alternative, where outsourcing aligns with the fund’s overall financial objectives rather than being driven by individual SPVs or regional setups.

The limitations of this approach are evident. Compliance-driven outsourcing models often focus on low-cost execution rather than strategic value, leading to inconsistent service quality and coordination difficulties between service providers and fund managers. The lack of integration between IT systems prevents firms from fully leveraging their financial data, making investor reporting slow and cumbersome. Ultimately, fund managers still struggle to extract meaningful insights from their outsourced operations.

Many service providers continue to operate as transaction processors rather than finance partners. Their teams, often composed of accountants and compliance specialists, remain focused on financial and tax reporting rather than liquidity forecasting, fund performance analysis, or proactive financial management. As a result, investors see little improvement in transparency, and finance functions fail to unlock the full potential of outsourcing.

A functional approach to outsourcing offers a more scalable and integrated model by shifting the focus from process execution to fund-level financial management. Rather than treating each SPV as a separate entity, this approach consolidates finance operations at the fund level, ensuring greater efficiency, standardization, and scalability.

By centralizing accounting, treasury, and reporting functions within a fund-based structure, finance teams can eliminate redundancies, improve accuracy, and deliver faster and more reliable investor reporting. This model also allows for greater automation, integrating AI-driven tools for financial close monitoring, automated reconciliations, and real-time fund performance tracking.

Technology plays a critical role in this transformation. The adoption of close-the-books monitoring tools, automated workflows, and advanced ERP modules significantly enhances financial accuracy and reporting efficiency. Implementing master data management frameworks ensures data consistency across all levels of the organization, while AI-driven analytics enable fund managers to make more informed decisions based on real-time financial data. At its core, this approach represents a shift from fragmented, SPV-centric finance operations to a streamlined, fund-level model that improves both cost efficiency and investor confidence.

For outsourcing to remain relevant, service providers must move beyond transactional processing and reposition themselves as strategic finance partners. This requires a fundamental shift in skills, technology, and approach and alignment with the functions in fund finance.

Service providers will need to hire professionals with expertise in fund performance analytics, liquidity and treasury management, financing, investor relations, and regulatory compliance. A deeper integration with fund managers will also be necessary to ensure that outsourced teams are not merely executing tasks but actively enhancing fund performance and decision-making.

The use of automation and AI-driven finance tools will be critical to achieving this transformation. Instead of manually compiling financial reports, service providers must develop automated, real-time dashboards that allow fund managers to access up-to-date NAV calculations, capital calls, and cash flow forecasts. Standardizing reporting processes across all funds and SPVs will also help eliminate inconsistencies and inefficiencies.

Beyond operational improvements, governance structures will need to evolve to support this new model. A more flexible, fund-level governance approach will enable fund managers to maintain greater oversight over outsourced functions while allowing service providers to introduce best practices and continuous improvements. Shifting to a fund-based outsourcing model requires careful planning and execution. Several factors will determine success:

• Technology & Automation: AI-driven workflows can eliminate manual reconciliations and accelerate financial close processes.
• Standardized Reporting & Compliance: Uniform structures reduce inefficiencies and improve transparency across funds and SPVs.
• Governance & Oversight: A streamlined governance framework ensures proper risk management and accountability.
• Collaboration Between Fund Managers & Service Providers: Moving from a vendor-client model to an integrated finance partnership is essential for long-term success.
• Change Management & Cultural Alignment: Effective transition strategies are needed to address internal resistance and retrain finance teams.

The service provider industry is at a turning point. AI and automation are rapidly transforming back-office functions, making traditional transactional outsourcing increasingly irrelevant. Fund managers no longer need service providers that simply process transactions. They need partners who can drive efficiency, transparency, and strategic decision-making.

The shift to a fund-based finance model is not just a theoretical improvement. It is a necessity for scalability, efficiency, and investor confidence. By consolidating operations at the fund level, integrating AI-driven automation, and adopting a functional approach to outsourcing, fund managers can finally achieve the efficiency and transparency they have long sought. The question for service providers is no longer whether to embrace this transformation but how quickly they can adapt. Those that fail to evolve risk becoming obsolete in a financial landscape where automation and strategic finance expertise will define the future.