Navigating the Complexities of Modern Fund Management: The Rise of Lift-Outs

Fund Administration
April 11, 2024

The fund management landscape has undergone significant change in the past two decades, leading to a re-evaluation of operational strategies within the industry. The traditional operational model of maintaining in-house a full-service middle and back-office faces considerable challenges.  Factors such as increased structural complexity, increased regulation, difficulties in hiring and retaining experienced staff, rising technology expenses, and a challenging investment environment have prompted many private equity fund managers to reconsider their operational model.

The historical alternative to the in-house model — fully outsourcing — is itself a daunting proposition considering the time-consuming transfer of data and knowledge that will be required, as well as the high risk of losing talent and institutional memory during the transition period. Additionally, the manager also depends on the outsourced provider to maintain a level of service and continuity consistent with the manager’s prior experience, an expectation that can be challenging to overcome with a new servicing relationship.

A new approach has emerged that addresses these challenges — the lift-out. The lift-out is becoming an increasingly attractive option for established private equity fund managers with multiple funds, sizable internal middle and back-office teams, and intricate technology systems and processes integrated across the organization because it offers the manager an excellent opportunity to preserve the quality of the operational experience it has previously enjoyed while shifting the complexity and cost of maintaining that service level to a qualified third-party administrator.

This article explores the reasons behind this transformational shift, highlighting the  characteristics that make lift-outs an appealing option for private equity fund managers as well as key considerations in executing a successful lift-out.

Evolving Challenges in Fund Operations

The cost of maintaining full middle- and back-office teams internally has increased significantly over the past two decades, making the choice to maintain these functions in-house challenging.

One of the main drivers of this trend is the growing complexity of fund managers’ investment operations. The rise in popularity of segregated accounts, co-investments, continuation vehicles, and financing structures such as preferred and NAV facilities has introduced a level of complexity in accounting and reporting that requires significant resources.  Complicating matters further, regulators and investors often demand more frequent and detailed reporting, increased oversight over valuations, and greater transparency. Fund managers are experiencing these demands across various facets of their middle and back-office operations, including financial reporting, expense allocation, and waterfall calculations, as well as ESG (Environmental, Social, and Governance) and compliance.

Adding to this complexity is the accelerated pace of technological innovation. Investors, having experienced the benefits of newer technology in one fund, now expect a similar experience across all funds. The adoption of digital documentation, streamlined onboarding processes, and robust data security measures have become essential for fund managers to stay competitive. Bringing on new technology and integrating it with existing systems is expensive and time-consuming.

Cost inflation also arises from the fact that attrition rates can be low at many fund managers. The competitive pay and benefits packages offered by many fund managers, especially in larger markets, may make employees less likely to move on even in the face of limited opportunities for promotion and advancement.

Fund managers face not only cost pressures but also management challenges with a large operations function, particularly in maintaining a motivated workforce.  Middle and back-office functions such as fund accounting, loan administration and monitoring, investor reporting, GP and management company accounting, and the like can be mundane and stressful and often provide limited career advancement opportunities compared to the fund manager’s investment team counterparts. Even within larger asset management firms, employees in these crucial functions may feel growth opportunities are limited, and productivity and employee satisfaction may suffer.

As fund managers grapple with these challenges, they have traditionally had three paths to follow: invest further in the in-house function and its supporting technology, fully outsource operations to a fund administrator, or adopt a blended approach known as co-sourcing.

A fourth alternative gaining traction today is the lift-out. This innovative approach involves transferring an in-house team, along with its systems and data or some combination of both, to a specialized fund administrator, offering a nuanced solution to the evolving landscape of fund management as well as offering a new opportunity set for dedicated employees.

The Rise of the Lift-Out Model

For fund managers dealing with multiple funds and vehicles and intricate processes interwoven across various groups, maintaining specialized knowledge and systems is crucial. The lift-out model has emerged as a viable option for fund managers in this situation. Instead of laying off or risking the loss of experienced personnel, phasing out internal systems, and undergoing a time-consuming transfer of information to a fund administrator, fund managers can explore having a specialized fund administration partner “lift out” their team or identified members, along with their systems and data. The team and systems being lifted out essentially move from the fund manager to the administrator and provide service back to the fund manager.

From the fund manager's perspective, a lift-out has several features that make it an appealing option:

  1. Continuity: The complexity and nuance of a fund manager’s unique investment strategy and the vehicles through which it is executed mean that intricate processes have been established and technologies have been implemented to provide robust tracking, reporting, compliance, and the like. In this situation, lifting out all or specific members of the middle and back-office teams and the associated technology can be a much more appealing option than going through an intensive and expensive conversion, not to mention the threat of loss of knowledge and data, which could be detrimental to the fund manager. The familiarity offered by a lift-out also provides the fund manager’s LPs with assurance despite the change in provider.
  1. Culture: Private fund managers take pride in the culture they promote, translating into strong investor relationships and portfolio performance.  Outsourcing middle- and back-office functions to a fund administrator can introduce challenges in maintaining a good cultural fit, as investment team members may have to deal with unfamiliar faces and patterns.  The ability to preserve much of the current internal team and, therefore, the culture that faces the remaining team from its service provider is an appealing option to many fund managers. Finding the right fund administration partner that can preserve the fund manager’s values is key to a successful lift-out.
  2. Cost Savings: The lift-out offers the established fund manager the opportunity to transition to an expense structure more consistent with current market practice while minimizing disruption and risk associated with full outsourcing. Private fund managers with large in-house operations teams often bear most of the cost of these teams, putting them at a relative disadvantage to other fund managers who have made the transition to outsourcing solutions. Outsourcing costs are typically treated as a partnership expense, and generally represent a very small percentage of total partnership expenses. Regulators and LPs value the independence a qualified outsourced provider brings to the table and are willing to bear this cost, in particular, if the fund manager re-deploys the savings toward other initiatives to strengthen its platform.
  3. Efficiencies: Often left out of the discussion, lift-outs generate unique opportunities to create efficiencies across the fund manager. Middle and back-office team members making the lift-out transition usually have valuable experience and ideas to improve and streamline their roles and the operational processes at their firm. When handled correctly, the lift-out can serve as an opportunity for all stakeholders to re-assess key processes, deliverables and other functions, and ensure that time and resources are deployed toward the highest-value areas while dropping activities that offer no discernible value. These changes can remove stress points in the organization and re-energize team members who are lifted-out, making them more valuable assets to their former employer.

Given the nuance and complexity of most private fund managers, no two lift-outs are the same. Each of the above potential benefits must be assessed carefully by the private equity fund manager and its fund administrator to determine whether a lift-out is best for its business. Once that is done, it is critical that the fund manager select a fund administrator with a track record of successful lift-outs to design and execute the lift-out plan.

Exploration of a Lift-Out Outsourcing Model

To provide more detail on how a lift-out works, let’s explore the hypothetical example of a private equity fund manager, ABC Capital, with multiple advised vehicles and a large middle- and back-office team. Faced with the option of investing more capital in technology and internal talent to keep pace with portfolio, LP, regulatory, market, and other demands or lifting out its operations infrastructure, ABC Capital chooses the latter, partnering with Petra Funds Group on this next phase of growth.  


ABC Capital has invested significant capital and time in building an eight-person operations team and acquiring best-of-breed technology to manage over $30 billion in assets across four investment partnerships, fifteen segregated accounts, and nine co-investment vehicles. The firm has plans to launch a private credit strategy that would require new systems and a dedicated three-person middle-office team, raising concerns about scalability and cost effectiveness of the current platform. Having heard from a peer CFO about the success she has experienced with a lift-out, ABC Capital’s CFO explores the outsourcing model as an alternative to growing the internal operations infrastructure further.

After an extensive due diligence process and strategic discussions among management, key LPs, the firm’s auditor, and other stakeholders, ABC Capital opts to pursue a lift-out model for several reasons:

  1. Implementing a traditional outsourcing model would be challenging to execute in a timely and efficient manner, making it an unappealing option. The risk of attrition during the transition is high.
  2. ABC Capital is reluctant to write off its previous investment in systems and human capital.
  3. The CFO has personally built her team and, together with the firm’s management, has a personal interest in providing opportunities for the team.
  4. ABC Capital believes maintaining continuity, given the team’s grasp of the data, is critical in the face of increasing pressure from regulators and LPs to deliver more detailed, high-quality reporting and to handle ad-hoc requests, all at a more rigorous pace.
  5. ABC Capital lacks specialized private credit middle-office expertise, of which the lift-out partner has extensive knowledge as well as systems and processes in place.


ABC Capital selects Petra Funds Group to be its lift-out partner after an extensive due diligence process. Both the Petra and ABC Capital teams invest significant time to define a clear set of goals and objectives and to align on a road map to achieve those goals and objectives. Petra uses its experience executing successful lift-outs and its team’s experience inside GPs to help inform ABCCapital’s thinking during this process, validating and challenging key assumptions along the way.

Petra assigns seasoned individuals who have managed successful lift-out transitions to work with the CFO and others at ABC Capital to execute the road map in stages. In the initial stage, Petra focuses on ensuring that it understands the individuals, including current roles and responsibilities, team dynamics, and anticipated challenges. At the same time, Petra focuses on the technology and systems involved, both hardware and software, to ensure the transition from internal to external will be seamless. Finally, a communications plan is prepared for the ABC Capital team, focused on anticipating questions and providing clear and helpful answers about Petra and the lift-out. In all aspects of the initial stage, Petra coordinates closely with key members of the fund manager responsible for the lift-out.

During the migration stage, Petra focuses on minimizing disruption to the lift-out employees, avoiding unnecessary frustration and works closely with the fund manager’s IT team to transfer access and perform testing, making sure that nothing is done before it is fully tested. Anticipating surprises, and as those arise, Petra communicates quickly and openly with the fund manager to ensure they are addressed.

Once the migration is complete, Petra continues to support the lift-out team as necessary. This may include acting as an interface with their former employer, as well as working with them to establish personal goals and objectives. In many cases, the lift-out team will have opportunities to take on new responsibilities, including for other Petra clients over time.


Working hand-in-hand with the fund manager, Petra coordinated the transfer of assets, data and team members while providing continuity to the fund manager and LPs. Although a few challenges were experienced along the way, the team worked together to ensure a smooth process in the end.

The Emergence of a New Fund Administration Model

The increasing frequency of lift-outs in private fund management represents a strategic response to the evolving challenges within the industry, including in particular increased costs. Whether prompted by the growing complexity of investment activities, the speed of technology advancements, concerns over staff retention, or the pressures of regulatory compliance, lift-outs can provide fund managers with an ideal solution to position their firms for the next decades of growth with an optimized middle- and back-office solution in place.

How Petra Can Help

PetraFunds Group is experienced in lift-out fund administration models, having successfully executed several lift-outs with large GPs. Leveraging our direct private equity experience and robust SOC I Type II operational environment, we have successfully integrated full middle and back-office teams into our environment, providing continuity to the GP and its LPs.

Please reach out to Stephen Coats, Paul Winters, or Jennifer Fichera to learn more about Petra's lift-out fund administration model.

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