Variable cost models are on the rise as PE firms remain cautious about increasing head count in uncertain times. This prudence is also resulting in the further growth of outsourcing as firms aim to manage cost and improve efficiency. Due diligence is becoming increasingly demanding and stringent, with cybersecurity concerns taking centre stage.
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Variable cost models are on the rise as PE firms remain cautious about increasing head count in uncertain times. This prudence is also resulting in the further growth of outsourcing as firms aim to manage cost and improve efficiency. Due diligence is becoming increasingly demanding and stringent, with cybersecurity concerns taking centre stage.
“The economic downturn is driving a need for greater efficiency and cost control,” says Anup Kumar, head of Linedata’s Global Services business. “This has further increased demand for automation and embedded analytics, in addition to more traditional business process outsourcing services.”
He explains how Linedata is helping clients along the cost transformation journey. This allows them to scale their business without adding headcount: “We’ve seen a flurry of activity in the realm of operating model re-design, with firms that had not considered this now becoming much more amenable to undertaking such an initiative.”
The need for transformation is not just driven by market conditions. Investors are also demanding fees to be lower or at least remain stable. “There is a much greater need to optimise costs in the current market relative to when markets were performing very well,” notes Kumar. As a result, he says, outsourcing is becoming an even more prominent strategy for many of Linedata’s clients.
Fund managers are also under pressure as traditional long/short equity returns have suffered through the turmoil. Consequently, Kumar observes a growing appetite for operational support in relation to more complex asset classes like collateralized loan obligations and distressed credit. Continued desire for private capital investments, both private debt and private equity, is also driving adoption of Linedata’s outsourcing and co-sourcing solutions for this part of the market.
The regulatory focus on cybersecurity is also affecting PE managers’ behaviour. This and operational due diligence are taking prominent place on their agenda as firms reach out for help to ensure they are compliant and have the right solutions and expertise in place.
In this context, cybersecurity resilience is critical and from a board perspective, firms are focused on having robust processes and controls and being able to demonstrate these to regulators, investors, and other key stakeholders.
Kumar also highlights that managers are still dealing with a talent shortage, especially in relation to specialised skills: “They are looking for experts who are hard to source and even more difficult to retain. This opens the option for a firm like ours with well-established BPO offerings to service those requests.” The persistent appetite for private capital investments also plays into this, as firms require the highly specific skills needed to handle the greater complexity in this part of the market.
Within private equity specifically, Kumar notes there has been a flight to quality which, in turn, requires a greater level of due diligence and monitoring of portfolio assets: “We expect some of the private equity market to slow down a little over the next 24 months. I don’t think the private credit space will be impacted as much.”
He adds that the need for stricter diligence in equity means managers can avail themselves of Linedata’s Cognitive Investment Data Management solution, which can support their efforts to scale and help create operational alpha without adding overhead. This solution helps firms digitally transform their investment data management processes with a combination of expert analysts and AI-based automation.
