No longer just a front-office play - how lift-outs are transforming fund operations
Over the past decade, the private investment management industry has experienced a period of accelerated change. As regulatory demands intensify, talent becomes harder to secure and retain, and the cost of technology and operations continues to rise, many investment firms are rethinking the viability of maintaining in-house middle- and back-office functions.
With firms finding the traditional operating model increasingly difficult to sustain in today’s complex environment, a broader shift towards more flexible and efficient solutions is sweeping across the industry. To remain agile and focused within this competitive landscape, a growing number of firms are turning to a hybrid middle and back-office operations model: the lift-out.
The term “lift-out” has traditionally referred to acquiring front-office investment teams, but now, it also applies to a different, but equally strategic, move: partnering with experienced fund administrators to fully transition internal operational teams to an external provider.
The lift-out model is gaining traction across the industry, with Preqin data showing that operational expenses for private equity firms have increased by over 20% in the past five years, driven largely by intensifying regulatory obligations and increased investor demand for operational transparency. At the same time, research from EY shows that 68% of private equity CFOs are actively considering outsourcing or lift-out models to improve efficiency, reduce and reallocate costs, strengthen controls and governance, and improve technology infrastructure. So for mid-sized and growth-stage managers in particular, lift-outs represent a strategic solution to the growing operational burden without compromising quality or control.
But the industry shift towards lift-outs isn’t driven by just one single factor. It’s the result of several converging pressures that are reshaping how private investment firms think about their operating model. These pressures are manifold, but three key drivers stand out:
- Rising investor expectations: Investor expectations have increased dramatically in recent years. Limited partners are conducting in-depth due diligence on fund operations, with 72% of institutional investors now ranking back-office capabilities as a critical factor in manager selection, according to a 2023 SS&C Intralinks survey. Meeting these expectations internally often requires heavy investment in technology, compliance infrastructure, and specialised talent, an expensive and time intensive investment that not only distracts managers from critical tasks like portfolio management, but also eats into the management fee, limiting managers ability to make critical front-office hires. With a lift-out fund administration model, firms are able to meet institutional-grade standards quickly and efficiently, while focusing internal capacity on strategic initiatives and value creation.
- Intensifying global regulatory pressure: The regulatory environment has also become markedly more complex. Global fund managers must now comply with an expanding web of jurisdiction-specific rules, including the SFDR in the EU, Form PF amendments in the U.S, and MAS updates in Singapore. A 2024 RSM US survey found that 59% of alternative investment firms cited “keeping up with global regulation” as one of their top three operational concerns. Managing this complexity internally is increasingly unsustainable for all but the largest managers.
- Acquiring and retaining talent: The challenge of talent acquisition further underscores the need for operational lift-outs. Middle and back-office finance roles remain difficult to fill and retain. In fact, the average tenure for fund accounting staff in the private markets space has declined to just under three years, according to data from McLagan. In a lift-out scenario, the fund administrator absorbs existing personnel, retaining institutional knowledge and providing them with training, support, and career development opportunities within a specialised fund services environment.
TMF Group’s role in successful back-office transitions
TMF Group has played a central role in facilitating lift-out transitions for private investment firms around the world. With offices in more than 85 jurisdictions and decades of experience supporting alternative asset managers, TMF Group is uniquely equipped to handle the operational, legal, and human factors involved in a back-office lift-out.
Executing a lift-out requires careful coordination, global regulatory knowledge, and a trusted service provider with the scale and sophistication to deliver. However, for firms ready to evolve their operating model, the rewards can be significant: lower operational risk, increased efficiency, and a platform designed for long-term growth.
Ready to future-proof your fund operations?
As the private investment management industry matures and as scrutiny from investors and regulators intensifies, back-office lift-outs will become a strategic solution for forward-looking firms.
If you're exploring ways to streamline your back office without sacrificing control or institutional quality, a lift-out could be the strategic move your firm needs. TMF Group has the global reach, regulatory expertise, and operational depth to guide you through a seamless transition.
Contact us today to learn how we can help you build a more agile, scalable, and investor-ready operating model.
