We hear it all the time: “Our internal operations just can’t keep up with the work.”
What begins as a manageable process at launch can quickly become a major constraint as a fund grows, particularly for firms that choose to self-administer. Scaling internal operations is rarely straightforward, and without the right structure, it can introduce significant operational risk.
For managers of closed-end funds, the first fund often starts with a limited number of investors and investments. By the time Fund II launches, however, many firms find that investor counts and portfolio complexity have tripled, or quadrupled, without a corresponding increase in operational capacity.
That burden only grows as firms introduce co-investment vehicles or form special purpose vehicles (SPVs). Each new structure brings its own accounting, reporting, and bookkeeping complexities, increasing both workload and the potential for error.
Open-ended fund managers face a different, but equally demanding, set of scaling challenges. As assets grow, funds often add prime brokers and custodians, increase trading activity, and manage more complex cash and position reconciliations.
At the same time, managers may launch feeder funds, roll out new strategies, or introduce additional fund structures, each one adding to the daily demands of administration. What once felt manageable can quickly overwhelm internal teams.
Operational scale isn’t just about hiring more people. True scalability requires:
• Built-in redundancy and coverage for key roles
• Modern, reliable technology that grows with the firm
• Accurate, timely, and consistent information flow to investors
Without these elements, firms expose themselves to operational gaps, delays, and increased risk.
Partnering with a third-party administrator can significantly reduce these risks. Administrators are built to scale. They employ trained teams with redundancy to manage turnover seamlessly. Their systems are designed and maintained by leading technology providers and are already integrated with brokers, banks, custodians, and valuation sources.
Just as important, administrators bring deep industry expertise. They understand the day-to-day realities of operating funds of varying strategies and sizes, and can proactively guide firms as they grow.
One critical factor in the scaling equation is the investor base itself. As funds become larger and more successful, investors tend to be more sophisticated. They expect accurate reporting, transparency, and operational efficiency. Falling short of those expectations can put the investor-manager relationship at risk.
While self-administration may work for some firms at certain stages, scaling internal operations requires careful planning and significant investment. For many managers, partnering with operational experts allows them to focus on what they do best, investing, while ensuring their infrastructure is ready for growth.
Preparing for scale isn’t optional. The question is whether to build it yourself or rely on specialists who already have it in place.