From Option to Default: Why Outsourced Fund Administration Is Now the Starting Point
A Question With an Increasingly Clear Answer
When a fund manager launches a new vehicle, there is a long checklist of decisions to make. Legal structure, fund terms, target sectors, LP strategy. And somewhere on that list sits a question that every manager has always had to answer: do we build our fund administration capabilities in-house, or do we outsource them?
For much of the industry's history, that was a real debate. Larger, more established managers often chose to build, hiring internal CFOs, controllers, and accounting teams, investing in systems and viewing tight control of their operations as a mark of institutional maturity. Outsourcing existed, but it was often seen as the option for managers who couldn't yet justify the headcount, or who were being cautious with costs in the early years.
That framing has fundamentally changed. Today, outsourced fund administration isn't the fallback. It's the default, and increasingly, the preferred model even for managers who could comfortably afford to build in-house.
How the Industry Got Here
This shift has been driven by a number of different forces that have steadily made the case for outsourcing more compelling and the case for insourcing more difficult to sustain.
For example, investor expectations have risen dramatically. LPs today expect independence, frequent, institutional-quality reporting, rapid turnaround on queries, investor portal access and an operational infrastructure that has been built to last. Meeting that standard requires purpose-built systems and experienced, dedicated teams who know your fund inside out, are available when you need them, and operate as a true extension of your own.
Technology has raised the bar further still. The platforms that power modern fund administration require significant investment and ongoing maintenance. Specialist administrators spread that cost across their client base in a way that most individual fund managers cannot match.
And perhaps most importantly, the opportunity cost of distraction has become undeniable. Every hour a GP spends managing back-office operations is an hour not spent sourcing deals, supporting portfolio companies, or cultivating LP relationships. The math doesn't favor insourcing.
Insourcing: No Longer a Serious Default
This isn't to say that insourcing has disappeared entirely. Some of the largest, most complex managers, with billions in AUM and highly specific operational needs, continue to maintain meaningful in-house capabilities. For them, the scale and complexity justifies the investment.
But for the vast majority of emerging and mid-market fund managers, building an in-house administration function from scratch is no longer considered the prudent path. The consensus in the industry has shifted. When advisors, agents, and LPs weigh in on fund formation and operations today, outsourced administration is almost universally what they recommend.
The managers who still default to insourcing tend to do so for one of a few reasons: familiarity with how they've always done it, a desire for perceived control, or underestimating how much the operational landscape has changed. In most cases, the data doesn't support the choice.
What Outsourcing Actually Looks Like Today
Modern fund administration is a far cry from the basic bookkeeping and reporting services that defined the category a decade ago. The best administrators today function as genuine operational partners that are embedded in the life of the fund, not just processing transactions in the background.
They manage the full accounting cycle, produce investor reporting, handle capital calls and distributions, calculate waterfall and carried interest, and support LP onboarding and ongoing investor relations. They work alongside auditors and tax advisors to ensure that year-end processes run smoothly and that K-1s go out on time. And they provide the compliance-adjacent operational infrastructure that keeps a fund examination-ready.
For the fund manager, this means a level of operational reliability that is genuinely difficult to replicate in-house, especially at the emerging manager stage, where every hire needs to wear multiple hats and bandwidth is always constrained.
Choosing the Right Partner
As outsourcing has become the default, the decision has shifted from whether to outsource to who to partner with. And that question matters enormously. Not all fund administrators offer the same level of service, expertise, or attentiveness.
The most important factors to evaluate are service model, technology, and the quality of the people you'll be working with day to day. Experience and attentiveness matter; a dedicated team that understands your fund's story, your investors, and your operational rhythm will always deliver more value than a purely transactional relationship.
The right administrator brings more than execution. They bring institutional knowledge, proactive communication, and a genuine interest in your fund running smoothly, flagging issues before they become problems and keeping your operations looking as professional as your investment process.