In the realm of asset management setting up and running a new firm and fund involves a distinctive and complex set of challenges. Outsourcing the role of Chief Operating and Chief Finance Officer (COO & CFO) can unlock a range of benefits tailored to specific needs. In light of this, Charlie Grant, Founder & CEO at Fund HQ, explores ten compelling reasons why firms should consider outsourcing their COO & CFO.
1. Cost savings
Employing a full time COO or CFO at the outset requires significant cost. Not only will an experienced and capable individual require a high salary, they will also usually require equity in the business. Outsourcing the role means giving up zero equity while providing a cost-effective solution; saving money both at launch and for ongoing COO requirements.
2. Specialised industry knowledge and expertise
Finding the ideal candidate to act as COO/CFO is not easy. They need to be a “jack of all trades” encompassing regulatory, legal, business, accounting, risk, sales and investment knowledge – and these are rare beasts! Outsourcing the COO/CFO function offers access to professionals with deep industry knowledge and experience, and by using a firm with several such staff (rather than a one-man-band), you get a thorough industry understanding across the various fund jurisdictions.
3. Speed to launch
Using an experienced specialist firm to get set up and running will significantly shorten the time to launch. The knowhow of where to go and what order to put systems in place means that there is no time spent on the “learning curve” that is usually associated with a less experienced in-house COO/CFO.
4. Back up
By using an outsourced firm of experienced operatives for the finance and operations function, as opposed to an in-house or even a single outsourced operator, you know that there is always back up should holiday, sickness, or resignations occur.
5. Market knowledge (structure and service providers)
Being familiar with the various legal structures and jusrisdictions of funds means that a new asset manager will be set up correctly from the start. An in-house hire is unlikely to have such knowledge whereas the outsourced COO/CFO will be familiar with the different structures. In addition, access to market knowledge with regards to the range of service providers available that are necessary for funds to operate will also be far greater with an outsourced firm than with an in-house operative. An outsourced firm also commands not only access to a wider range of providers, but also the pricing power, which often delivers a cheaper fee proposal than a firm could obtain on its own.
6. Compliance and regulatory oversight and knowledge
Regulatory compliance is central to the asset management industry, with stringent requirements governing asset manager operations, reporting, and fiduciary responsibilities. Outsourced COO services provide access to compliance expertise and services, enabling new firms to remain compliant while adopting the most cost efficient solution.
7. No distraction to the Investment Manager
While not often considered, it can be hugely time consuming and distracting from the important role of managing the fund when the CIO has to get involved in operational, legal, and compliance issues. Outsourcing the COO/CFO role means that the CIO (usually the founder) can focus on their core competencies of portfolio management, asset allocation, and investor relations.
8. Scalability and long term planning
For firms to be able to successfully navigate shifting market conditions, fund performance, and changes in assets under management, they must have operational flexibility. By outsourcing, this resource can be adjusted according to the firm’s requirements at the time. Furthermore, once at a certain scale, the outsourced COO firm can help to make the transition to in-house operatives, if and when this is deemed to be practical.
9. Industry changes, risk management and technology
Timely access to legal and regulatory changes in the asset management world not only makes sure the firm is compliant, but also reduces financial risk from missing such changes. By using an outsourced COO/CFO, firms will be able to harness the extensive knowledge and market insight that comes with their access to a variety of different service providers and fund operatives, therefore mitigating risks and ensuring the firm stays up to date. This is also beneficial for keeping up to date with the latest technology available to asset managers and ensuring that the systems in place are as current and efficient as possible.
10. The new normal
While the idea of a non-internal COO/CFO was not only unusual but frowned upon by potential investors 10 years ago, it is now becoming increasingly common with new launches. Investors not only see it as leveraging expert knowledge, so they know that the asset manager is operating in the most efficient and compliant way, but also as a way to keep costs down and, above all, to remove any distraction from the primary reason for the firm’s existence – portfolio management.
