A full annual cost for both models, the break-even NAV, and why adding funds pushes the break-even further away.
Compare the administrator's full invoice plus the oversight team you keep with the full cost of a team, its systems, its controls report and the migration. On an illustrative manager with six funds and 3,000 million of NAV, outsourcing costs 1,690,000 a year and in-house 1,986,000. In-house only becomes cheaper above 3,740 million of NAV, about 623 million a fund, because the administrator's fee grows with assets and an in-house team grows with funds.
Worked in full in The Private Markets COO by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Insourcing administration usually comes up when the administrator's invoice crosses some psychological line, often the cost of a few senior hires. The comparison that follows is almost always salary against invoice, and it is almost always wrong, in both directions. The invoice leaves out the people the manager still needs to oversee the administrator. The salary line leaves out the systems, the independent controls report the investors will ask for, and the cost of moving. Put both sides on the same full-cost basis and the answer becomes a break-even, not an opinion.
| Input | Value |
|---|---|
| Funds and total NAV | 6 funds, 3,000m |
| Administrator fee per fund | 4.0 bps of NAV, minimum 120,000 |
| Fixed services per fund (investor services, regulatory filings) | 25,000 |
| Oversight team kept when outsourced | 2.0 FTE |
| Fully loaded cost per FTE | 170,000 |
| In-house team | 3.0 core FTE + 0.8 per fund |
| Accounting and investor systems | 220,000 + 30,000 per fund |
| Independent controls report (SOC 1 or ISAE 3402) | 110,000 |
| One-off migration, amortised over 5 years | 750,000 |
All figures are illustrative. The fee schedule follows the usual shape, a basis-point rate with a minimum per fund; how such schedules are built is worked in how fund administration fees are calculated.
Fee per fund = MAX(minimum, bps × fund NAV) + fixed services
= MAX(120,000, 0.0004 × 500m) + 25,000 = 200,000 + 25,000 = 225,000
Outsourced total = 6 × 225,000 + 2.0 × 170,000 = 1,350,000 + 340,000 = 1,690,000, or 5.63 bps of NAV
In Excel: =funds*(MAX(min,bps/10000*NAV/funds)+fixed)+oversight_FTE*cost
The oversight team is not optional. Someone has to review the administrator's NAV packs, approve payments, answer investors and own the errors, which is why the comparison of one administrator with another in what a cheaper administrator actually saves prices internal hours too.
| Line | Annual cost |
|---|---|
| Staff: 3.0 core + 4.8 fund FTE = 7.8 FTE at 170,000 | 1,326,000 |
| Systems: 220,000 + 180,000 per-fund licences | 400,000 |
| Independent controls report | 110,000 |
| Migration, 750,000 over 5 years | 150,000 |
| In-house total | 1,986,000 |
In-house costs 296,000 a year more, 6.62 bps against 5.63. The salary line alone, 1,326,000, is 24,000 below the administrator's fee of 1,350,000, which is exactly the comparison that starts these projects and the one that should not finish them.
Above the minimum, the outsourced cost rises with NAV and the in-house cost does not. Set them equal and solve for NAV:
Break-even NAV = (in-house total − oversight − funds × fixed) ÷ bps rate
= (1,986,000 − 340,000 − 150,000) ÷ 0.0004 = 3,740m, or 623m a fund
Growth can come from bigger funds or from more of them, and the two routes give opposite answers.
| Total NAV (m) | Outsourced | In-house | In-house minus outsourced | Outsourced bps | In-house bps |
|---|---|---|---|---|---|
| 1,500 | 1,210,000 | 1,986,000 | 776,000 | 8.07 | 13.24 |
| 3,000 | 1,690,000 | 1,986,000 | 296,000 | 5.63 | 6.62 |
| 4,500 | 2,290,000 | 1,986,000 | -304,000 | 5.09 | 4.41 |
| 6,000 | 2,890,000 | 1,986,000 | -904,000 | 4.82 | 3.31 |
| 9,000 | 4,090,000 | 1,986,000 | -2,104,000 | 4.54 | 2.21 |
| Funds | Total NAV (m) | Outsourced | In-house | In-house minus outsourced |
|---|---|---|---|---|
| 3 | 1,500 | 1,015,000 | 1,488,000 | 473,000 |
| 6 | 3,000 | 1,690,000 | 1,986,000 | 296,000 |
| 9 | 4,500 | 2,365,000 | 2,484,000 | 119,000 |
| 12 | 6,000 | 3,040,000 | 2,982,000 | -58,000 |
At 6,000 million of NAV the answer depends on how it is packaged: in six large funds, in-house saves 904,000 a year; in twelve funds of 500 million, it saves 58,000. Every new fund, sidecar or co-investment vehicle adds people and licences to the in-house cost and only a fixed fee and a basis-point charge to the outsourced one. A manager that grows by multiplying vehicles should expect the break-even to keep receding.
At 1,500 million in six funds, each fund's 4 bps would be 100,000, so the 120,000 minimum binds. Small funds pay the administrator's minimum, which is the strongest argument for outsourcing early.
The operating calendar, the vendor register and the capacity model behind a decision like this are templates in the free workbooks for this book.
When the administrator's basis-point fee outgrows the fixed cost of a team. In this illustrative case, with six funds, a 4 bps fee and an in-house cost of 1,986,000 a year, the break-even is 3,740 million of NAV, about 623 million a fund. Adding funds of 500 million each barely helps: twelve such funds are only 58,000 cheaper in-house.
Everything that is not salary. Here systems cost 400,000 a year, the independent controls report 110,000 and the migration 150,000 a year over five years. Comparing the 1,350,000 administrator fee with 1,326,000 of salaries alone makes in-house look 24,000 cheaper, when on the full basis it is 296,000 dearer.
It depends on the limited partnership agreement, but a third-party administrator's fee is often a fund expense while an in-house team is usually a management company cost. In this case that moves 1,646,000 a year onto the manager's own profit and loss if it insources: its cost rises from the 340,000 oversight team to 1,986,000.
This article is one calculation from The Private Markets COO. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: private equity and private markets → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.