Originally published in Funds Europe (https://www.funds-europe.com/opinion/talent-technology-and-process-foundations-for-fund-managers-looking-to-scale)

For the most part, mid-market fund managers across the board didn’t miss a beat in the years over the Covid-19 pandemic.

Most had built an infrastructure robust enough to continue operating well, whilst continuously improving that infrastructure to meet new demands as they developed day-to-day. As a result, today, mid-market fund management firms are in a better position to work towards a more nuanced target operating model, strategically building out more rigorous plans across talent, technology and process, which put them on a level playing field with much larger fund managers.

Part of this involves building a talent management strategy.

With record job vacancies across most major fund centres, including the US, UK and Luxembourg, talent management weighs heavily on the minds of the C-suite. In a recent EY survey of private equity and venture capital fund CFOs and COOs, talent management was the largest concern across the board. That means ESG initiatives, cost management and technology transformation all took a back seat to talent on the strategic priorities list.

Across asset classes, fund managers have been attracting staff by outbidding each other for talent, increasing perks like salaries, hybrid working, holidays and other benefits like sharing carry, in the case of private equity and venture capital managers. However, two years of this has meant that those same firms are now finding it difficult to manage people out, when the rare but necessary need to arises. This hits mid-market firms, who have smaller teams, particularly hard.

Whatever the size company, this staff shortage is also an opportunity for fund managers to think more about who they want to attract to any vacancies, making a conscious decision to plan for diversity, equality and inclusion, to take a closer look at hiring practices.

On the tech side, managers need to put great thought into what their technology model is (and making that as future proof as possible). What part does automation, real time cash positions, ESG data, onboarding and investor returns data figure into this model? How much work will it be to get third parties, like outsourced fund administrators, linked up to your systems?

These are obstacles to overcome, but once the systems are up and running, managers quickly see benefits. For example, managers can grant investors “self-service” access to their returns data, perhaps at a different level than the manager’s own staff. This reduces time spent on basic returns enquiries, whilst being mindful of their level of access in order to stave off potential micromanagement.

Finally, partly due to the war in Ukraine, more managers are asking whether their existing IT is robust enough to withstand cyberattacks, aware of what hacking means for and can do to their business – for example capital calls or notices being intercepted and amended.

On the process side, complexities arise because asset managers can utilise multiple jurisdictions to provide the most effective structures for their investors. They could be a European private equity or real estate manager using a Luxembourg ManCo to run a fully regulated fund; a UK fund manager utilising regulatory services in Jersey to act for a Cayman fund, or a US asset manager taking their first steps into Europe. Each case brings front, middle and back-office challenges that compound with changing regulatory requirements and standards for processes.

The conclusion here is that talent, technology and process are an ongoing battle for all firms, but larger managers can field teams of HR, IT and back-office experts to work on them.

Managers who haven’t yet scaled to that extent, or those who are reluctant to take on the costs involved, are seeking outsourced partners now more than ever. Outsourcing might not have historically been quite as popular in the private equity and venture capital space as it is within real estate, but the wind is blowing decisively in that direction.