By: Frank van Osch
When an investment fund is established, an early and fundamental question arises as to how the operating model should be structured. Which activities should be performed by the fund manager, and which are more efficiently outsourced?
For decades, a clear trend has been observable: fund managers increasingly outsource non-core activities to fund administrators. Research conducted by De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) confirms this development.
Why does this shift take place, what are the benefits and risks, and which activities may or may not be outsourced in the Netherlands? How does this compare to international fund hubs such as Luxembourg and Ireland? One thing is clear: the role of the fund administrator is evolving from an executing party into a strategic partner.
Increasing complexity for fund managers
A fund manager primarily focuses on strategy, investment selection, risk management, and portfolio monitoring, but also carries substantial administrative responsibilities. These include accountability to investors, the accurate execution of transactions, and the maintenance of a complete and compliant administration in accordance with applicable laws and regulations.
Fund administrators are responding to this development by taking on a broad range of operational activities. Whereas they were traditionally primarily responsible for accounting, reporting, and administrative processes, they now also provide support with fund establishment, CDD/KYC checks, maintenance of the investor register, directorship services, and compliance. In addition, they increasingly offer digital platforms that provide fund managers and investors with continuous access to key fund data.
Although the fund manager remains ultimately responsible under the Dutch Financial Supervision Act (Wet op het financieel toezicht – Wft) and the Anti-Money Laundering and Counter-Terrorist Financing Act (Wet ter voorkoming van witwassen en terrorismefinanciering – Wwft), limited scale or expertise can make compliance with complex regulation challenging. The (partial) outsourcing of these activities can therefore provide an effective solution. As a result, the cooperation between fund manager and fund administrator is increasingly strategic in nature.
The benefits of outsourcing
Outsourcing non-core activities offers fund managers significant advantages. First, it increases operational efficiency and scalability. Through standardization, automation, and the use of scalable platforms, the fund manager can focus on core activities. This enables growth, such as through new funds, jurisdictions, or structures, without substantial investments in the internal organization.
In addition, the fund administrator fulfils an independent control function. While auditors and custodians oversee valuations and NAV calculations, the administrator provides an additional layer of oversight that enhances transparency towards regulators and strengthens reputation and credibility towards investors.
A third benefit is improved information provision. Modern administrators no longer deliver reporting alone, but also provide online dashboards and analytical insights through advanced technology. As a result, fund managers have access to up-to-date data for decision-making and strategic steering. Investors often have access to fund performance through the same portal, further reinforcing mutual trust.
At the same time, the fund administrator is evolving into a knowledge partner. Drawing on expertise in regulation, market standards, and operational processes, administrators advise on fund structures, compliance, and risk management. They identify deviations and support adherence to applicable laws and regulations, enabling the fund manager to focus fully on its primary objective: generating returns for investors while maintaining robust risk management.
Market trend: growth of outsourcing
The trend toward outsourcing is unmistakable and is primarily driven by the increasing complexity of laws and regulations. European directives such as AIFMD, UCITS, MiFID, and AMLD, as well as regulations such as PRIIPs, SFDR, GDPR, and DORA, impose ever more stringent requirements on fund managers.
Specialized fund administrators are able to implement and comply with these regulatory frameworks more efficiently than internal departments. This reduces the need for substantial investments in internal compliance and reporting infrastructures or the engagement of costly external advisors.
This development has led to consolidation within the market. Large international administrators have assumed a dominant position, while smaller players differentiate themselves through niche expertise and tailored solutions. In particular, managers of private equity, real estate, and crypto funds seek partners with a deep understanding of their complex structures. As a result of the professionalization of the sector, a significant share of qualified personnel now works at fund administrators. This trend is expected to continue and intensify in the coming years.
Legal framework and limits to outsourcing
In the Netherlands, managers of an alternative investment fund (alternatieve beleggingsinstelling – AIF) fall under the AIFMD, while undertakings for collective investment in transferable securities (instellingen voor collectieve belegging in effecten – UCITS) are subject to the UCITS Directive. Both frameworks are implemented in the Dutch Financial Supervision Act (Wet op het financieel toezicht – Wft) and are supervised by the AFM and DNB.
Within this framework, non-core activities such as fund and investor administration, (partial) compliance, reporting, ICT, and HR may in principle be outsourced, provided that the fund manager retains ultimate responsibility, maintains sufficient expertise, and exercises adequate oversight over the execution of these activities.
Stricter requirements apply to core activities such as portfolio management and risk management. Pursuant to Article 20 AIFMD and Article 13 UCITS, as implemented in the Wft and the Decree on Conduct Supervision of Financial Undertakings (Besluit gedragstoezicht financiële ondernemingen – Bgfo), the fund manager must retain sufficient “substance,” including expertise, decision-making authority, and oversight. This is intended to prevent the manager from becoming a mere letterbox entity. In addition, material outsourcing arrangements are subject to a notification obligation to the AFM.
The Netherlands is generally regarded as applying a relatively principle-based supervisory approach, focused on proportionality, risk orientation, and demonstrable control. This approach allows for tailored solutions but requires continuous monitoring. Luxembourg and Ireland, by contrast, typically apply a more prescriptive supervisory framework. Although EU regulations are formally harmonized, their practical application differs: in those jurisdictions, fund managers may operate with a small local core and extensive outsourcing, provided they formally comply with AIFMD or UCITS requirements.
New cooperation models
Traditional models of full outsourcing are increasingly giving way to hybrid arrangements. A key example is co-sourcing, whereby the fund manager and the fund administrator collaborate within shared processes and systems. The fund manager retains control over core functions, while the administrator provides technology, capacity, and expertise. This results in a balanced cooperation in which efficiency and control are combined.
A more far-reaching variant (still relatively uncommon in the Netherlands) is the so-called lift-out, whereby an internal department of the fund manager is transferred to the fund administrator. This enables a rapid transition and provides immediate access to modern infrastructure and specialized expertise.
This evolution has fundamentally changed the role of the fund administrator. Whereas in the past this role was primarily operational, today it functions as a strategic partner that helps fund managers comply with regulations, manage operational risks and achieve growth. Increasing regulatory pressure and digitisation mean that this role will continue to grow in importance. The successful fund manager will be the one who succesfully balances strong internal control with scalable external collaboration.
