The LP-Driven Mandate: Operational Excellence Is Now an Investor Requirement

The LP-Driven Mandate: Why Operational Excellence Is Now an Investor Requirement

For years, operational excellence was treated as an internal exercise. It was the COO’s responsibility to keep the engine running, the GC’s job to manage risk, and the compliance team’s role to tick the right boxes and avoid regulatory missteps. It was about staying out of trouble and managing costs quietly in the background.

That story has changed.

Today, limited partners are not just evaluating investment performance. They are scrutinising how funds are run — looking closely at the systems, processes, and controls that underpin every deal and every report. According to a recent survey of 150 LPs globally, 85% of LPs have rejected investment opportunities due to operational concerns alone, and 68% now rank operational transparency above historical performance when assessing managers. A further 64% require documented, tested cybersecurity protocols before committing capital.

Regulation is intensifying, but it is no longer the defining pressure.

In the U.S. FinCEN’s final rule has been delayed until January 2028, when SEC-registered and exempt-reporting advisers will be required to have comprehensive AML programs and carry out suspicious activity reporting. That change will mark a step-change in workload for private markets firms. And with 21,669 registered investment advisers now overseeing $146 trillion in AUM in the U.S. alone, the compliance surface area is only expanding.

But LPs are not waiting until 2028. They are applying these standards today, and for firms seeking capital, operational discipline has become a competitive differentiator.

What LPs want to see

Operational due diligence has become a decisive moment in fundraising. Research shows that LPs are not just reviewing compliance frameworks - they are using ODD findings to shape deal terms and, in some cases, to walk away entirely. A Private Funds CFO survey reinforces the point: 70% of GPs surveyed said that LPs were conducting more due diligence on middle and back office functions, and 90% saying compliance is where the most detailed LP questions focus. On the LP side 70% said that robust AML/KYC policies are a ‘must-have’. 

At the same time, investors are demanding more transparency in how information is shared. In APAC, 42% of LPs expect customized analysis, while 37% of EMEA investors prioritise dashboard-style reporting. Generic reporting is no longer enough. LPs want data in real time, tailored to their needs, and backed by robust compliance evidence.

The cost problem

This shift in expectations is happening against a challenging financial backdrop. Private equity is sitting on more than $2.6 trillion in dry powder, even as exits slow and competition for deals intensifies. Fundraising is under strain too, with the total raised in the 12 months to June 2025 falling to a seven-year low of $592 billion. Managers are under pressure to do more with less, delivering the same — or more — without expanding cost bases.

Traditional legal and compliance delivery models make that difficult. Law firm billing rates in the U.S. rose by an average of 9.1% in 2024, with some top partners now charging over $3,000 per hour. In the U.K., the top ten firms have raised hourly rates by nearly 40% in five years, from £321 in 2019 to £449 in 2024. For high-volume, repeatable tasks like NDAs, engagement letters, or transaction-level KYC, that level of spend is increasingly hard to justify.

A better way forward

The firms that are adapting fastest are rejecting the false choice between speed and quality. They are adopting models that combine specialist human expertise with AI-powered workflows, delivering premium outcomes more quickly, with fewer errors, and at a fraction of the cost. McKinsey research shows that organisations embedding next-generation operational excellence see productivity gains of more than 25 percent in year one, with a further 15 percent possible in year two - all without increasing costs.

In practice, that means being able to:

• Turn NDAs around in hours rather than days, without compromising on precision.

• Run transaction-level KYC with the same rigour and documentation LPs expect from a regulator, but faster and more cost-effectively, with real-time dashboards, tracking and audit trails.

• Manage LP transfers at scale, even as volumes spike, without spiralling external legal bills.

These are not operational nice-to-haves. They are becoming the minimum price of admission to capital.

The bottom line

Operational excellence has shifted from internal ambition to external requirement. LPs are clear about what they want: faster deal execution, lower costs, transparent reporting, and bulletproof compliance. They are prepared to walk away from managers who cannot deliver it.

The firms that respond will not just stay compliant. They will win trust, attract capital, and prove to investors that they can deliver returns without compromise. In other words, they will stop choosing between quality and speed. They will demonstrate both, consistently and at a lower cost.

And in 2025, that is the standard that investors are already demanding.