Why operational misalignment could cost your fund

Getting the details right at the outset has always mattered. But for today's asset manager, the cost of not getting them right ripples further than ever before – through fundraising, operations, tax and, ultimately, the investor relationship

The results of Ocorian's Asset Manager Survey 2026 show that most respondents (59%) expect that operational excellence will be the most critical driver of competitive advantage for alternative asset managers by 2028, ahead of investment performance at 12%. With expectations shifting towards being organised and having the processes in place to manage funds properly, building the right structures from the start is increasingly important.

In principle, this alignment has always mattered but the conditions for achieving it have changed markedly; and indeed 91% of respondents to our survey either frequently or occasionally encounter material conflicts or rework caused by misalignment between tax planning, operational execution, and compliance requirements. 

That is a striking figure, and it points to how much harder alignment across these functions has become, even for a mature industry with established ways of working.

Why is this happening, and what support helps managers stay a step ahead?"
 

An increasingly complex environment

There's context here worth acknowledging: funds have become exponentially more complex in recent times.
These days the traditional single General Partner (GP) plus single Limited Partner (LP) is vanishingly rare. Managers are increasingly dealing with everything from parallel funds to co-investment vehicles, continuation funds to feeder funds. Add to this the fact that cross-border funds, fundraising and LPs are commonplace, regulatory requirements are expanding and LP strategies are more varied than ever before and it's easy to see why managers feel stretched.

The upshot of all this is more entities, more interdependence, a greater number of stakeholders, more reporting requirements and a general sense that there is more work than ever before.

A deeper look at the survey results highlights an industry having to adapt at a rapid pace. 80% of respondents say they will increase the use of third-party providers across the lifecycle; 76% say that investor reporting is challenging or extremely challenging; 66% cite regulatory delays or complexity as a primary factor influencing the timing of fund exits.

The context and the data boil down to one salient point: with more moving parts than ever before, misalignment is inevitably more common and more probable.
 

Fundraising: where alignment matters most

The greater complexity of asset management as a whole has created new challenges for GPs at every stage of the fund lifecycle, but there is still real opportunity to strengthen how funds are set up from the outset.

There is a clear advantage for GPs who take a long-term view of their funds well before launch. 80% of respondents to our survey said that conflicts and rework most commonly arise at the fundraising stage. This is one of the hardest points at which to undertake material changes to structures, as timelines are shortened and external stakeholders are getting increasingly involved.

One of the most common pressure points we see is a structure created at pace, with a Limited Partnership Agreement (LPA) that isn't fit for purpose as it doesn't factor in those long-term tax, compliance and operational considerations.

In an environment where GPs face growing pressure to compete for capital, secure investors and get to market swiftly, it's understandable that the timeline compresses. Commercial pressures can lead to commitments on timelines, structures and deliverables that are difficult to execute operationally. Understandably, the focus is on getting to close, and the operational detail of those commitments can end up being revisited later than is ideal.

This is where an early second look pays off: without it, structures often need reworking once complexity arises.
Part of this is simply carry-over from a simpler era – the historic single GP + LP formula. It's easy to assume the same setup will scale to more entities and global footprints, but in practice it rarely does, and the strain tends to show over time.
 

The taxing consequences of misalignment

Since Ocorian launched its fund lifecycle model, we've been plotting the key moments for asset managers and helping spot pain points before they arise. Quite often, we're seeing the consequences of early misalignment all the way through the lifecycle, and especially at those key moments. When time is of the essence and the number of parties involved increases, any gaps in the operational model become apparent; these are precisely the moments when operational readiness matters most.

Tax is a good example of how much timing matters. The tax timeline and the fund timeline simply aren't always joined up. To take the U.S. as a case study, managers close a fund and, knowing that K-1s are not due until the following year, and understandably don't prioritize the tax conversation until the K-1 deadline is closer. Bringing that conversation forward is a small change that makes a real difference.

K-1 delivery is where this timing gap becomes most visible to LPs. It's common to commit to delivering K-1s by March – a reasonable target on its face – but that date is far harder to hit when the fund invests in other flow-through entities. In that scenario, the fund is waiting on K-1s from those underlying entities before it can prepare its own, which puts a March date out of reach through no fault of the manager. In practice, that can push delivery as late as August or September. Building the tax timeline into the structure early is what keeps those commitments realistic – and keeps LPs confident.

The stakes are highest at exit. Most U.S. fund structures are flow-through entities – partnerships that don't pay tax at the fund level, so the liability flows through to the individual LPs and the manager. When a liquidity event moves quickly, it's easy for proceeds to be distributed before the full tax picture is modelled – which is exactly why building that modelling in ahead of time is so valuable. Knowing the number before the money moves keeps managers in control of the outcome.

A family office we worked with offers a useful illustration. Moving into private equity for the first time, the manager wanted to give each investor the flexibility to opt out of specific deals – a genuinely investor-friendly instinct. To honour it, a separate legal entity was created around each individual investment, resulting in 12 distinct fund entities rather than 12 investments held within a single structure.

Each of those entities carried its own audit, its own compliance oversight and its own reporting – so the ongoing operational and cost load was considerable. The original decision was entirely reasonable in the moment; what the example really shows is the value of pressure-testing a structure against the full fund lifecycle up front. Mapping it out early would have surfaced that overhead – and the trade-offs – while there was still room to weigh them.

Misalignment also has a way of compounding – small disconnects early on tend to grow as the fund moves through its lifecycle, and they're often most exposed at exit. Most exits generate significant due diligence, and that's precisely where any structural strain from earlier stages tends to resurface – right when the stakes are highest.

Due diligence isn't a one-time event, either; it happens at multiple closes, through ongoing investment decisions and again at the point of sale. Each of those moments calls for accurate, up-to-date information generated quickly, and that rework draws on time managers can rarely spare.

So, misalignment tends to compound; decisions taken at the start shape how smoothly things run at the moments when operational soundness, speed and accurate data matter most.
 

Fix it at the outset, benefit down the line

If, as our survey results suggest, operational excellence is going to be the driving force of competitive advantage for asset managers, they can secure an obvious head start by baking this in from the outset.

Operational excellence should be understood as a function of investor confidence, not back-office efficiency; a precondition for going to market, not an afterthought.

Part of this excellence is going to be achieved by having the right conversations with the right experts at the right time. Compliance, tax and fund administration advisors need to be consulted before the LPA is drafted. 

From there, they can help GPs to figure out what's needed from the outset, how it should be reflected in the LPA, and how it will be realised throughout the lifecycle of a fund.

A solution to the common problem of misalignment is to work with a single provider who works across the spectrum of the needs of a modern fund. Doing this from the outset is the most effective way to avoid disconnects; getting your work checked and verified up front is a straightforward way to get it right first time.

Your provider will likely take a longer-term approach, which will be beneficial for realising the fund's future events and their associated liabilities and opportunities. Equally important to the time horizon is looking holistically at the GP's proposition. When it comes to tax, for example, a third-party provider brings an independent, whole-picture view – covering everything from fund-level tax work and K-1 preparation for investors, to modelling the tax impact of liquidity events right down to the individual GP. It's about taking care of the investors first, then taking care of you.

We are seeing GPs take an active approach to the need to look longer term and consider the inputs at the outset. These managers are minded to grow and use a provider with the right framework to help them do it.

This end-to-end model is facilitated by the combination of operational, compliance and tax capabilities under one roof, meaning the information flow between the two functions is seamless rather than dependent on inter-firm data sharing.

The significance of Ocorian's survey results lies not in any single statistic but in the pattern they describe. Misalignment, reporting headaches, regulatory burdens and growing structures are all symptoms of the same underlying issue: the complexity of fund management has moved faster than most operating models were built to handle.

It's worth taking a fresh look at your current processes to spot opportunities to reduce rework, improve efficiency and enhance the experience you're delivering to LPs. Getting it right early is where costly reworking is avoided and the service you offer investors is strengthened.

At Ocorian, our goal is to help fund managers navigate that complexity with confidence, reducing operational friction so they can stay focused on delivering results for investors – and we're here to help you do it.