IREI: Running Lean & Outsourcing vs In-House Strategies

Below is an excerpt. Read the full IREI story here.

March 1, 2023 – When a trend that was once a “nice-to-have” becomes a “need-to-have,” you know it’s here to stay. That seems to be the case with outsourcing, in which investment managers enlist a third-party provider to handle everything from fund administration accounting to leasing and property management so they can shift their time and resources to focus on their core competencies.

The merits of an in-house strategy

Despite the value proposition for outsourcing, there is still the case of firms choosing to keep their investment management operations in-house. This model could make the most sense if the firm has the infrastructure — resources, knowledge base, technology and personnel — to support it. BKM Capital Partners, a real estate fund manager specializing in the acquisition and improvement of value-add light industrial multitenant properties in the United States, has built a vertically integrated, all in-house platform for its real estate operations, encompassing property and asset management, leasing, construction, and design teams. The firm also utilizes a hybrid model for its back-office operations, through which it engages third parties to provide fund administration and other back-office services for investment products while retaining other back-office functions in-house.

Bill Galipeau, CFO of BKM Capital Partners, said this strategy allows BKM to better control the end-to-end process and stay closely aligned with the market, giving the firm a competitive advantage in the multitenant industrial space.

“To be successful in our niche asset class, you have to be an excellent operator,” says Galipeau. “The architecture of our operating model enables us to be exactly that. We handle large volumes of transactions in short timelines with very low error rates. It’s extremely hard to do.”

BKM has designed its strategy to be very operationally efficient, with significant emphasis placed on automation and technology, using common applications and data sources among front- and back-office teams. The firm also has developed proprietary business intelligence software that significantly streamlines investment research and drives decision making.

“BKM’s model took nearly a decade to build and perfect,” adds Galipeau. “We were committed to in-house management from inception, and we’ve invested heavily in the people and technology necessary to do it. It takes patience and perseverance to do it well, but in the long term, its benefits are significant. Where it made sense to outsource, we did, and it has paid off very well.”