Choosing the Right Operating Model as You Scale

As real estate investment platforms expand, operational risk often outpaces investment complexity. What once felt manageable with a lean team and a small number of vehicles can quickly become fragile as transaction volume rises, structures expand and investor expectations become more institutional. In our previous blog, we examined why operations have moved beyond a back-office function to become a strategic differentiator for real estate managers. That shift makes operating model decisions increasingly central to how platforms scale and is a key reason why they deserve deliberate attention.

The right model evolves with the platform. The wrong one is often outgrown long before managers realize it.

Why Scale Changes the Equation

An emerging manager with a single fund does not face the same operational complexities as a multi-strategy platform managing dozens of vehicles. Yet many managers choose their fund administration, technology and staffing models based solely on their current state rather than their anticipated trajectory.

As assets grow, processes and systems rarely keep pace. Manual workarounds multiply. Institutional knowledge concentrates in a handful of individuals. Over time, the operating ecosystem becomes fragile, increasing the risk of delays, control gaps and stakeholder frustration.

Recognizing when this inflection point is approaching and proactively adapting the operating model is critical.

The Three Core Operating Models

Different operating models distribute control, responsibility and scalability in different ways. The following comparison highlights how these tradeoffs typically show up in practice.

No single model is inherently better than another. Each reflects a different balance between ownership, flexibility and scale.

Where managers often get into difficulty is not in choosing a model, but in holding onto it after their platform has outgrown it.

How Maturity Shapes the Right Choice

As investment platforms evolve, operating priorities shift. Emerging managers often prioritize flexibility and cost sensitivity. Scaling managers must address rising transaction volumes and LP expectations. Institutional platforms require deeper specialization, repeatable processes and stronger controls.

An operating model that performs well at one stage can introduce risk at the next. Many managers start in-house, selectively outsource as complexity rises or new strategies are added and consider lift-outs when both scale and continuity become critical.

Understanding the Tradeoffs

Operating model decisions involve tradeoffs across several dimensions:

• Control and governance
• Scalability and resilience
• Cost structure and predictability
• Talent risk and continuity
• Audit and compliance readiness

There is no universally correct answer. What matters is whether the model supports the outcomes the platform requires.

For many managers, most questions arise around lift-outs, including how they work, what effective control and oversight looks like in practice and what factors determine success or failure. Gaining a deeper understanding of lift-outs is essential to making an informed decision.

Expense Design Is Part of the Operating Model

Operating model discussions often center on delivery and oversight, but expense design determines how those choices translate into reported results and investor economics. In-house, outsourced and lift-out models can all be structured to work economically, but they differ in how costs are allocated, disclosed and absorbed over time. The starting point for any model change should be the governing documents—particularly LPAs and offering materials, which define what may be charged to the fund versus what must be borne by the manager.

Ongoing administrative and servicing costs, such as fund accounting, reporting, compliance and investor services, are commonly treated as fund expenses when permitted by governing documents. Transition-related costs, however, require more deliberate design.

Implementation expenses, such as data migration, system configuration, parallel processing and process redesign, are often non-recurring, yet they can create meaningful volatility in reported performance if recognized in a single period. To manage this, some managers evaluate capitalization and subsequent periodic amortization approaches where permitted, while others use expense caps, fee offsets or GP absorption mechanisms to maintain LP economic neutrality.

For open-end or benchmark-aware vehicles (e.g., ODCE funds), comparability also matters. Sudden shifts in expense ratios driven by operating model changes- rather than asset performance- can raise LP questions even when the long-term operating model is sound. As a result, many managers scenario-test expense treatments in advance to understand impacts on net returns, expense ratios and peer comparability.

At a certain level, the operating model question shifts from who performs individual tasks to how the entire system is designed to function over time. Managers seeking to reduce operational drag without relinquishing oversight increasingly look for models that shift execution and infrastructure externally while keeping standards, governance and accountability firmly in-house. For these platforms, a lift-out approach can provide a path to scale while preserving institutional continuity. Evaluating how lift-outs work in practice, which we will cover in an upcoming blog, is a critical next step for managers navigating growth and rising complexity.

Supported by an expert team with extensive experience, SS&C offers a comprehensive solution for operations, accounting, analytics and reporting for real estate funds, infrastructure funds and other hard assets so you can free your staff to focus on higher-value activities.