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Co-Sourcing: A New Trend Revolutionizing the Funds Industry

In an era where agility and efficiency are critical for success, the funds industry is increasingly turning to innovative operational models to maintain competitiveness. Among these, co-sourcing has emerged as a compelling trend. By blending the strengths of in-house teams and external expertise, co-sourcing enables funds to achieve operational excellence while navigating the complexities of today’s financial landscape.

What is Co-Sourcing?

Co-sourcing is a collaborative approach where a company partners with an external service provider to perform specific functions. Unlike outsourcing, where entire processes are transferred, co-sourcing retains a level of internal control and oversight. This model ensures that organizations can leverage external expertise and resources while preserving strategic decision-making capabilities.

In the funds industry, co-sourcing often involves partnering with third-party providers for tasks such as compliance, fund administration, technology solutions, and risk management. By sharing responsibilities, fund managers can address talent shortages, adapt to regulatory changes, and optimize operational costs.

Why Co-Sourcing is Gaining Traction

Regulatory Complexity: The funds industry faces an ever-evolving regulatory environment. Co-sourcing allows firms to access specialized knowledge and tools to stay compliant without the need to build extensive in-house capabilities.
Cost Efficiency: Co-sourcing offers a cost-effective alternative to expanding internal teams or fully outsourcing functions. It enables firms to scale operations without committing to the long-term fixed costs of additional headcount or infrastructure.
Technology Advancements: The rapid pace of technological innovation in areas like data analytics, artificial intelligence, and cybersecurity can be overwhelming for internal teams. Co-sourcing with tech-savvy partners ensures funds have access to cutting-edge tools without needing to invest heavily in development or training.
Focus on Core Activities: By offloading non-core activities, fund managers can concentrate on their primary objectives, such as portfolio performance and investor relations. This strategic focus can lead to better overall outcomes.
Resilience and Scalability: In uncertain times, co-sourcing provides flexibility. Whether scaling operations during growth phases or navigating market downturns, this model allows firms to adjust resources as needed.

Key Areas of Co-Sourcing in the Funds Industry

Compliance and Regulation: With increasing scrutiny from regulators, many funds are co-sourcing compliance functions to ensure adherence to local and international standards. This includes reporting, anti-money laundering (AML) checks, and ESG compliance.
Fund Administration: Tasks like NAV calculations, investor reporting, and tax services are often co-sourced to specialized providers who bring efficiency and accuracy to these critical functions.
Technology and Cybersecurity: Managing complex IT infrastructures and protecting sensitive data is a significant challenge. Co-sourcing partners can offer advanced solutions and expertise to mitigate risks and enhance operational efficiency.
Risk Management: From market risk to operational risk, co-sourcing allows funds to tap into robust frameworks and analytical tools provided by external experts.

How Project Accountants Can Support Fund Managers Considering Co-Sourcing

For fund managers exploring the co-sourcing model, Project Accountants offers an unparalleled partnership experience. Project Accountants specializes in accounting, finance, fund administration support, and audit support services. With a team of highly experienced professionals boasting over 100 years of combined experience, the firm has worked with some of the biggest names in the industry worldwide.

Our Services Include:

Accounting Outsourcing: Efficient and reliable outsourcing solutions tailored to meet the unique needs of fund managers.
Professional Secondments: Access to experienced professionals who can seamlessly integrate into your team for short- or long-term projects.
Fund Administration Support: Comprehensive support in fund administration tasks to enhance operational efficiency.

At Project Accountants, we believe that professional services should be accessible, innovative, and delivered with exceptional customer service. Collaborating with us means having a dedicated and proficient team by your side, committed to helping you navigate the complexities of the funds industry.

Why Choose Project Accountants?

Expertise in accounting, compliance and fund administration support services, with extensive experience across global markets.
Registered with the Jersey Financial Services Commission for AML/CFT purposes.
A customer-centric approach that prioritizes your strategic goals.

Visit Project Accountants to learn more about how we can support your co-sourcing journey.

Challenges and Considerations

While co-sourcing offers numerous benefits, it is not without challenges. Firms must carefully select partners with aligned goals and strong reputations. Data security and confidentiality are paramount, requiring robust contracts and governance structures. Additionally, clear communication and defined roles are essential to prevent overlaps or gaps in responsibilities.

The Future of Co-Sourcing in the Funds Industry

As the funds industry continues to evolve, co-sourcing is poised to play an even more significant role. The need for agility, coupled with rising operational complexities, makes this model an attractive option. With advancements in technology and a growing pool of specialized service providers, co-sourcing will enable funds to innovate, grow, and thrive in a competitive landscape.

By embracing this collaborative approach, the funds industry can achieve the perfect balance between control and efficiency—paving the way for sustainable success in an increasingly dynamic market.

Co-sourcing isn’t just a trend; it’s a strategic evolution. For funds seeking to enhance their capabilities while maintaining focus on core competencies, the time to explore co-sourcing is now.

FIVE THINGS TO NOTE IN THE IPEV GUIDELINES

The International Private Equity and Venture Capital Valuation (IPEV) Guidelines (‘Valuation Guidelines’) set out recommendations, intended to represent current best practice, on the valuation of Private Capital Investments. The Valuation Guidelines 2022 should be regarded as superseding the previous 2018 Valuation Guidelines issued by the IPEV Board and are considered in effect for reporting periods beginning on or after 1 January 2023.

APPLICABILITY

The Valuation Guidelines are intended to be applicable across the whole range of alternative funds (seed and start-up venture capital, buyouts, growth/development capital, infrastructure, credit, etc.; collectively referred to as Private Capital Funds) and financial instruments commonly held by such funds.

STATUS OF IPEV GUIDELINES

Where there is a conflict between the content of IPEV Guidelines and the requirements of any applicable laws or regulations, accounting standards or generally accepted accounting principles, the latter requirements should take precedence.

IPEV GUIDELINES ISSUED IN DECEMBER 2022

The key purpose of the revised edition of the IPEV guidelines is to not to re-invent the wheel but to provide a framework for consistently determining the fair value of investments held by private capital funds.

Therefore, the enhancements in the 2022 edition are meant to continue to support the existing concepts to assist investors in private capital funds in making better economic decisions in relation to the fair value of the investments.

Five key points to note in the lasts IPEV guidelines changes (effective as of 15 December 2022)
are outlined below:

1. KNOWN OR KNOWABLE INFORMATION AT THE MEASUREMENT DATE

This relates to conditions that existed at the date of measurement. Known or Knowable information pertains to facts, conditions, or observable information which exists as of the measurement date and is available to the valuer or would be available to valuer through routine inquiry or due diligence. For example, the value of a traded share is known or knowable at the measurement date as it can be obtained from the relevant exchange or reporting service. For example, changing markets, new players in the industry, new products, rise in interest rates. These should be considered when deriving an investment’s fair value at a specific date.

2. INCORPORATING ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FACTORS IN THE VALUATION MODELS

Investors’ needs are evolving and there is an ever-increasing focus on ESG bringing a growing need to integrate ESG into valuation models. ESG factors are becoming an important focus of investors, regulators, and governments. These factors may impact fair value from both a qualitative and quantitative perspective.

3. ADJUSTMENT TO ENTERPRISE VALUE, FOR COMPANIES IN THEIR EARLY STAGE OR PRE-REVENUE COMPANIES

While there are different ways to value a company in its early stage, it is very subjective to put a value on early-stage entities which are in the pre-revenue stage. Valuation methods and key performance indicators (KPIs) will differ, depending on where the business is. Attention should be paid to how the capital is structured and whether the company is achieving the set milestones, accordingly this would impact the valuation favourably or unfavourably.

4. DISLOCATION OF MARKETS

Relates to volatility and uncertainty, in relation to potential future development i.e. increasing interest rates, Covid-19 pandemic, Russian-Ukraine war amongst others. In these circumstances professional judgment must be applied as it may not be appropriate to use transaction multiples or recent price if the market is changing very rapidly especially those negotiated before a market dislocation to receive significant, if any, weight in determining fair value. In such conditions fair value remains the amount that a market participant would pay in an orderly transaction reflecting current market conditions.

5. DATA QUALITY

There is a renewed emphasis on entities to ensure information gathered during the valuation process is of high-quality ensuring reliability of the data used in each valuation technique.

NEED SOME HELP?

Project accountants specialise in private equity fund accounting and fund administration support services. If you have a query regarding the application of IPEV guidelines, please feel free to reach out to a member of our team or visit www.projectaccountants.co.uk.

Outsourcing accounting and finance : Revolutionise Your Operations

Industry Insights
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Outsourcing accounting and finance is a growing trend that offers businesses numerous benefits. Keeping the finance function in-house can be expensive and challenging to manage. Here are the big-ticket items that can help in your journey towards revolutionising financial operations.

Cost Savings

Outsourcing accounting and finance can lead to significant cost savings for businesses by eliminating the expenses of hiring and maintaining an in-house finance team. This can allow businesses to invest in other critical areas and achieve their growth objectives.

Access to Expertise

Outsourcing accounting and finance provides businesses access to a team of highly skilled professionals who specialize in various finance-related areas. This expertise can be invaluable for businesses looking to streamline their financial operations and make informed financial decisions.

Scalability

Outsourcing accounting and finance can easily adapt to changing business needs without the hassle of hiring and training new staff. This allows businesses to remain flexible and agile, focusing on their core functions while experts handle financial operations.

Focus on Core Functions

By outsourcing accounting and finance, businesses can focus on their core functions, such as product development or customer acquisition. With financial operations taken care of by experts, businesses can invest their time and resources into other critical areas, leading to improved productivity and growth.

Risk Management

Outsourcing accounting and finance providers are up-to-date on the latest regulatory and compliance requirements, reducing the risk of non-compliance. They also have robust data security and backup measures in place to protect businesses from data breaches and other cyber threats.

In summary

Outsourcing accounting and finance is the future of financial operations. By outsourcing accounting and finance, businesses can achieve significant cost savings, access expertise, remain scalable, focus on core functions, and mitigate risk. If you are considering outsourcing accounting and finance, evaluate the potential benefits and drawbacks and make an informed decision. With outsourcing accounting and finance, you can revolutionize the way you handle your financial operations and achieve your growth objectives.

Project Accountants specialise in providing a game-changing solution that will transform the way you handle your financial operations irrespective of which industry or sector you operate in. To learn more, please reach out to a member of our team or visit www.projectaccountants.co.uk.