Fund administration special: Blue Wolf Capital’s CFO on outsourcing

For effective outsourcing, relationships matter. Blue Wolf Capital’s chief financial officer, Joshua Cherry-Seto, offers his insights and regrets.

Outsourcing has become an important aspect of the private equity industry, but not all firms understand how to pick the right third party and what a successful relationship with them looks like.

Joshua Cherry-Seto, chief financial officer and chief compliance officer of Blue Wolf Capital, a mid-market firm with more than $1.2 billion in assets under management, shares some of his regrets, advice and future outlook on outsourcing.

What is your biggest outsourcing regret?

Not engaging a consultancy to run a formal process. Our time is limited and is worth a decent project manager cost. We will spend half a million [dollars] on a fund administrator, so $30,000-$50,000 for support on the search process is money well spent.Q

What was your most important lesson learned?

Relationships matter – prior ones and future ones. These are long-term partnerships. Take the time to understand and show we care about what is valuable to them, too.

Which outsourcer has been great for you?

Proskauer – corporate counsel including fund offering/co-invest support and tax structuring – efficiently getting us expertise and, more importantly, a partner to our business to help us think through what we are trying to accomplish.

What are your three most important tips on outsourcing?

Don’t shortchange the requirements and search process; bring in a consultant to organise and run the process, just like we pay placement agents to assist with fundraising.

Focus on the relationship and make sure they understand high touch/white glove is required, and they are worth the extra cost to us. Understand their business model and how you add value to your outsourcer – the more you are seen as valuable to them, the more alignment will exist, and the better fit and service you will get.

What is the next function you are considering outsourcing?

Portfolio company reporting, as we scale and want to spend more time on analysis than collecting.

What would you love to outsource but can’t?

Chief compliance officer! We are definitely looking to do a better job of outsourced support to the CCO function.

What do you wish outsourcers did better?

Understanding us – being in our space more.

Explain an experience where you found you were disappointed in a function you outsourced.

We have had two experiences. On fund tax, it was good for the earlier stage of our life, but as we scaled and expanded in complexity, we did not feel they continued to give us leverage.

On fund administration, we used a very small, niche provider for staff augmentation which was helpful when we were small, but they did not continue to invest in their team, so lost all depth by the time we left.