Private Equity (PE) firms are investment firms offering financial backing to various new or struggling companies. They usually provide financial aid to corporate entities that aren’t publicly traded. PE firms are always searching for corporate entities with high growth potential in the market.

 

They also offer funds to companies in distress that require corporate restructuring. PE firms cannot invest in these firms without investigation and analysis. PE firms depend on their in-house employees. The pressure on PE firms is increasing, and they require outsourcing services. Private equity outsourcing can help a firm maximize returns and improve operations.

 

Read on to understand how PE Outsourcing maximizes returns and the best practices.

 

How Outsourcing Helps PE Firms to Maximize Returns?

 

When the overhead pressure from PE employees is reduced, they will have the time to focus on maximizing returns. Outsourcing partners will provide PE firms with the technology and expertise to make informed decisions. When investment decisions are based on research and analysis, they are likely to offer high returns. Outsourcing partners provide PE firms with a level of expertise they never had. A private equity firm does not have to recruit in-house analysts and researchers.

 

Not all outsourcing partners help in completing the non-core functions. One can find an outsourcing partner that can help with investment research, market analysis, deal sourcing, target evaluation, and other complicated tasks. These outsourcing partners have access to new-age technologies and software solutions to generate rich investment insights. Many private equity firms already benefit from outsourcing their core and non-core functions.

 

Even though PE outsourcing is a boon, not all PE firms end up maximizing their returns. It happens when PE firms fail to follow the best practices and strategies for outsourcing.

 

Here are the best practices for private equity outsourcing to maximize returns:

 

Separate Non-Core Operations

 

The core function of a private equity firm is to find and invest in companies with a chance of growth. It also includes the research tasks for finding the right portfolio company. A private equity firm also focuses on non-core functions like accounting, HR, client support, and others. A PE firm must separate its non-core operations from others.

 

Once non-core operations are highlighted, they must be outsourced to a reliable firm. Let your employees focus on core operations that are responsible for maximizing returns. You can save funds when you do not hire employees for non-core operations like accounting and HR. The saved funds can be used to boost core private equity operations.

 

Choose the Right Outsourcing Partner

 

Many PE firms fail to maximize their returns because they do not choose the right outsourcing partner. You must choose a PE outsourcing partner that has been around in the industry for an extended period. Also, the outsourcing partner must have helped many PE firms in the past to maximize their revenues. Don’t choose the first private equity outsourcing firm you come across. Take some time and compare the offerings, costs, and support services of different private equity outsourcing firms. Choose a private equity outsourcing partner that offers the best value for money.

 

Draft an SLA

 

Before you start seeking the outsourcing partner’s help, developing an SLA (Service Level Agreement) is essential. The SLA is decided between the private equity firm and the outsourcing partner. With the help of an SLA, the private equity firm and the outsourcing firm can define their expectations. It is beneficial for a PE firm as it can define the types of services required, performance standards, communication standards, and other requirements. When the outsourcing partner deviates from their responsibilities, the PE firm will have the SLA to remind them of their duties.

 

Focus on Technology

 

Without technology, it is impossible to find high-return investment opportunities in this competitive world. An outsourcing firm that uses technical solutions for private equity research is the right choice. Private equity firms can make informed decisions that will maximize returns.

 

In a Nutshell

 

PE outsourcing offers much more than just cost benefits. Private equity firms can expand in new jurisdictions and find high-return investment opportunities with the help of an outsourcing partner. Do not forget to define an SLA before seeking services from a private equity outsourcing firm. Outsource PE operations right away!

Must Read: Technology-driven Private Equity Solutions That Drive Value