Outsource providers are not immune to the “great resignation” that’s impacting business generally, and are trying to find ways to meet increasing client demands with the people they have.
These providers tell Private Funds CFO that they are leaning on technology, increased client communications and existing talent to provide the services firms want.
“There’s a real struggle in the private funds space, and outsource providers are not immune to this,” notes the partner at a service provider. “It’s becoming a real problem for the outsource providers. Whatever talent exists has become very expensive. For us, retaining talent is a top priority so we can meet the existing needs of our clients. And we’re working with them to figure how best to meet their future needs.”
Debbie Reeve, an associate director at outsource provider Aztec Group, agrees that due to labor market issues and to the increased trend in outsourcing, there’s no way the firm can continue hiring at a rate which can match that growth.
“We need to start leveraging technology to automate manual basic processes to allow staff to focus on value-add client interactions,” Reeve says.
The hiring woes are not unique to the US market. Rosie Guest, chief marketing and communications officer at Apex Group, says that in the UK, job vacancies are outpacing unemployment for the first time, impacting both the cost and time to hire from the external market – meaning effective talent acquisition and creative talent sourcing strategies are critical.
“Asset managers are increasingly understanding the benefits of partnering with a third-party provider who can provide flexible services and technologies to support their business. As such, this growing demand for solutions is driving the need for experts with the skillsets necessary to deliver exceptional service,” Guest explains.
She adds that competition for top talent in many jurisdictions has always been fierce, but it has intensified this year.
And this tough hiring environment could slow down PE deal closures, a recent study by BDO found.
In the study, 39 percent of respondents said “lack of bandwidth” (that is, staffing resources) among vendors hindered deal closings.
Steven Yadegari, CEO of outsource provider FiSolve, said he is not surprised to hear that hiring is an issue and that more PE firms are looking to outsource various in-house functions because of the ambitious rulemaking agenda at the SEC.
Many firms are trying to be proactive and get in front of issues such as the new marketing rule for private funds, cybersecurity, ESG and the near-instantaneous reporting requirements, which are also areas that outsourced providers are trying to deal with today. And this in-house need for people with certain skills is adding to the hiring woes at outsource providers.
Outsourcing various PE functions is on the rise. One contributing factor is that firms are not able to get the talent they need themselves, so they are outsourcing more.
Yadegari says part of the increased reliance on outsourced providers is an issue of resource allocation, largely driven by investors who increasingly like to see a third-party involved and providing some level of oversight in things like checking valuations and performing accounting on a daily basis.
PE sponsors are looking to outsource certain tasks in order to focus on things that really add value, such as portfolio management, deal flow, capital fundraising and interacting with investors, notes Keith Miller, a partner in EisnerAmper’s Financial Services Group.
The tasks most often being outsourced include reporting, management accounts, annual financial statements, bank account maintenance and payments. Aztec’s Reeve adds that in the case of emerging managers, they are outsourcing functions that haven’t been outsourced before.
Adding to the outsourcing trend, the SEC has recently put forward several new proposals that will increase the compliance and reporting burden for fund managers.
Focusing on talent retention
Considering the hiring issues for outsourcing firms, many are now focusing on retaining the talent they do have.
Apex’s Guest says that, as a “people focused” business, it’s important for outsource providers not to neglect their people. Retaining talent goes beyond salary and benefits, but includes opportunity and purpose, Guest says. For example, Apex has launched initiatives such as the Women’s Accelerator Program and an Innovation Think Tank to groom and retain top talent so they can succeed.
Reeve agrees that retention is just as important as recruitment, and it is important to keep people within your firm that not only have the required skillset, but also share the company’s values.
What should PE firms look for in an outsource service provider?
With more PE sponsors looking to outsource administration work as well as financial tasks including the CFO position, audits and bookkeeping, it’s important to find the right partner.
According to Patty Stevens, a partner at consulting firm at 2912 Advisors, PE firms are looking for a cost-effective way to get expertise and certain experiences, but it’s important to partner with an outsource provider who has experience working with the type of firm and fund you run.
EisnerAmper’s Miller adds that PE managers should also consider whether an outsource provider can be a long-term partner and grow with your firm.
It’s also important to look at the backgrounds of the individuals at outsource providers to understand the experience and skill sets of the people performing the day-to-day work for your firm, Yadegari advises.
Finally, firms should consider how hiring difficulties will impact various service providers and how they meet their needs, the partner at a service provider, advises.
“You want to know that they will be able to provide the services you pay them for, when you need those services,” he notes. “They may have great technological services to perform different functions, but that might not be enough. If they can’t hire the right people or keep the right people, they may not be able to help you.”