Fintech Insights

Why BPaaS Could Be a Path to Growth for Alternatives

April 10, 2018

In 2006, I authored a white paper called “Claiming Back the Business.” Although most people weren’t calling it ‘cloud computing’ back then, I described the potential for hosted and managed IT services to shift the balance of power in favor of the user – our clients would be able to choose solutions that were right for their business requirements, free from many of the constraints imposed by traditional, in-house, technology operations that were prevalent at the time.

Fast forward 12 years, and we’ve moved from cautious exploration of the cloud’s capabilities to mainstream acceptance and adoption. Cloud-based deployments and services now play an essential part in ‘business as usual’ activities across most industries including alternatives, and although this new multi-vendor, multi-cloud operating model has brought with it integration complexity, the cloud continues to offer efficiencies and benefits that are impossible to ignore.

As I cast a critical eye on my white paper, I’ll be the first to admit that cloud computing hasn’t given the business complete autonomy over IT decisions – nor do I believe that that would have been a desirable outcome. But it has leveled the playing field for vendors and consumers alike, which has resulted in more innovation, greater choice, shorter timelines and lower costs. And while the IT industry has seen cyclical change in the past, I believe the move to the cloud is permanent.

So, what’s next? If cloud computing is now production-ready and widely available, growth-ready and future-embracing firms are looking beyond technology for efficiency gains and competitive advantage.

By reviewing the operational overheads inherent in most day-to-day activities within alternative asset managers such as private equity funds, and targeting those tasks that are essential, but repetitive, time consuming and not directly driving value for the business, we can start to think about the work we want to do vs. the work that can be automated and/or consumed via managed service. In the alternatives space, whether that’s fund accounting, fund reporting or investor portal administration – consuming expertise through a BPaaS engagement delivers the same advantages as the cloud (scalability, agility, cost effectiveness) but higher up the business value chain.

Think about it: if you’re in business to maximize value for your investors, shouldn’t you spend most of your time doing exactly that? In the same way that we’ve recognized that we can run a business without the overhead of managing and maintaining a huge amount of on-premise computing infrastructure, we can now apply the same principles to business operations.

Much like the migration of technical services to the cloud, there are sensitivities around the BPaaS delivery model particularly relating to data protection but with appropriate due diligence, and by leveraging experienced partners, Readiness Leaders in the alternatives space are making early moves and realizing the benefits of outsourced back-office operations. Trust is key, and where a single provider can deliver an end-to-end managed service – infrastructure, application and business process – complexity and risk are reduced whilst the level of service commitment increases.

At FIS, we see BPaaS as a growth opportunity in alternatives and other business lines. Our recent research, The Hunt for Growth Across Asset Management, found that 54 percent of private equity firms plan to outsource back-office operations in the near future. Similarly, in its 2018 Global Private Equity Survey, EY found that 63 percent of private equity firms already outsourced part of their fund accounting functions.

Through a comprehensive range of hosted and managed services, including our latest General Partner Managed Service offering, FIS is able to not only deploy and manage our solutions on highly secure and resilient infrastructure in our own data centers, but also take responsibility for clients’ business operations through flexible and cost-effective BPaaS delivery models. With a long-standing and b track record of empowering our clients in the private equity space, along with wide-ranging technical and functional domain expertise, we are helping alternative funds to reduce operational overheads, so they have more time to focus on what they do best.

Which brings me neatly back to my white paper. Twelve years on, it’s clear to me that this was just one hurdle in pursuit of operational efficiency. In today’s marketplace, I see a real opportunity for funds to take a holistic view of both technical and functional operations with a view to exploring outsourcing opportunities where the function is non-strategic. And then in 2030, perhaps we’ll remember the days when alternative fund leaders felt curious yet uncertain about outsourcing their business operations to managed service providers. And I’ll finally be able to say that we claimed back the business.

To learn more about how FIS is empowering private equity and other alternative fund leaders with BPaaS offerings, connect with Kevin Potter and his team. We’re ready to help you reinvent your back-office operations so you can focus on growth.