By Toby Glaysher, Chairman, FINBOURNE.
Asset servicers face a paradox: winning business in the industry’s fastest-growing segment whilst discovering that growth erodes rather than enhances profitability. Private markets represent both strategic opportunity and operational crisis, exposing fundamental limitations in infrastructure built for a different era.
When growth creates problems
The expansion into private credit, infrastructure debt, and direct lending has revealed an uncomfortable truth. Servicing a private credit fund requires substantially more operational effort than servicing a traditional structure of comparable asset size. The traditional asset servicing model relied on operational leverage, each incremental fund adding less marginal cost than the previous one. Private markets do not scale in this fashion.
The operational demands differ fundamentally. Private credit funds need borrower-level detail, covenant tracking, cash flow monitoring, and collateral management. Each loan, property, and private equity stake requires individual valuation assessment. Cash flow patterns are irregular and unpredictable, marked by capital calls, distribution waterfalls, and complex fee structures that vary by investor and vintage. The operational rhythm is less standardised, more exception-driven.
Most servicers attempted to adapt existing infrastructure rather than fundamentally rethinking their approach. The result is extensive manual intervention. Data that should flow automatically gets handled through spreadsheets and offline processes. Reconciliation becomes labour-intensive because different systems handle different aspects of fund operations. What should be automated becomes attritional
The transparency gap widens
The infrastructure strain intensifies when investor expectations enter the equation. Limited partners in private funds are sophisticated allocators making substantial commitments over extended timeframes. Their need for detailed, current information about holdings exceeds what traditional quarterly reporting can satisfy.
They expect to understand portfolio composition in real-time, monitor risk concentrations, and query data on demand. They want to integrate fund information into their broader portfolio management systems without waiting for servicers to manually compile each request. Building portals that surface data is straightforward. Ensuring the underlying data is structured, current, and comprehensive enough to support meaningful analysis is substantially harder when core systems weren’t architected for this use case.
This creates a competitive vulnerability. New entrants built on modern architectures can offer capabilities that established servicers struggle to match: faster onboarding, superior data access, more flexible reporting. The capability gap has evolved from inconvenience to genuine business risk. When prospects evaluate service providers, technology capability has moved from supplementary criteria to primary evaluation factor.
The scalability constraint
The economic implications become unavoidable. Infrastructure that worked adequately for dozens of mandates breaks under hundreds. Teams spend more time on data reconciliation and error correction than on activities that directly serve clients.
For servicers evaluating their strategic position, several questions crystallise the challenge. Are operational costs per client increasing or decreasing over time? Can you scale private markets business without proportional headcount increases? When you lose competitive evaluations in this segment, what reasons are cited: price or capability? How long does launching a new private markets service actually take, and is that timeline driven by strategy or constrained by technical limitations?
The modernisation imperative
This isn’t about whether to service private markets. Most established servicers already do, and declining these mandates means ceding the industry’s primary growth opportunity to competitors. The question is whether existing infrastructure can service them sustainably and profitably.
The alternative to modernisation isn’t maintaining the status quo. It’s watching profit margins compress as operational complexity grows faster than revenue, losing competitive evaluations to better-equipped rivals, and gradually ceding market position in the segment that defines the industry’s future. Technical debt accumulates exponentially, and what could be addressed through planned evolution today becomes crisis-driven transformation tomorrow, invariably at higher cost and greater business disruption.
For forward-looking servicers, private markets capability represents the clearest business case for infrastructure modernisation. Not simply to service existing mandates more efficiently, but to win new business in the industry’s fastest-growing segment and do so profitably. The economics of operational complexity matter increasingly, and the gap between servicers with modern infrastructure and those without compounds over time.
The question isn’t whether infrastructure modernisation is necessary. It’s whether servicers will modernise strategically, on their own timeline, or reactively, under competitive pressure with limited options. Private markets growth has made that decision urgent.
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