Introduction
Alternative Investment Funds (AIFs) are built to be lean. Their operating model prioritises investment performance, fast decision-making, and controlled overheads. Yet, the same model creates a paradox under today’s regulatory and investor environment. AIFs increasingly face heightened expectations for IT governance, cybersecurity maturity, and operational resilience, even when they do not maintain large internal IT teams.
Under Securities and Exchange Board of India scrutiny, the key question is not whether an AIF uses a managed IT provider or an internal IT team. The question is whether the fund can demonstrate accountability, oversight, evidence of control execution, and responsiveness to risk.
SEBI inspections and trustee reviews tend to surface the same recurring issues, unclear ownership, ad-hoc processes, incomplete evidence, weak vendor governance, and insufficient monitoring, regardless of whether IT is in-house or outsourced.
This article provides a practical comparison of Managed IT services providers vs In-House IT for AIFs through the lens of SEBI inspections, auditor expectations, trustee oversight, and LP due diligence. It also explains what each model can do well, where each model typically fails, and how AIFs can choose the model that best fits their size, complexity, and risk profile without compromising regulatory defensibility.
SEBI’s Lens: Outcomes, Governance, and Evidence, Not Headcount
SEBI does not prescribe an operating model for IT. During inspections, it typically assesses whether the AIF can demonstrate:
- Clear ownership and accountability for IT and cyber risk
- Formalised policies and processes aligned to fund operations
- Continuous oversight, not one-time audits
- Evidence of execution, including patching, access reviews, and incident handling
- Vendor governance and third-party risk management
- Preparedness for incidents and business disruptions
SEBI scrutiny focuses on how IT is governed, not where IT sits on the organisational chart.
Defining the Two Models Clearly
In-House IT Model
The fund employs internal IT resources, full-time or part-time, responsible for:
- Device and user support
- Systems administration
- Security controls and monitoring, directly or through tools
- Vendor coordination
- Audit support and documentation
Managed IT (MSP) Model
The fund engages an external MSP to deliver IT operations and sometimes security, including:
- Helpdesk and device management
- Patch management and monitoring
- Endpoint and email security administration
- Backup and recovery execution
- Reporting, evidence, and compliance support
Both models can be compliant under SEBI. Both can also fail, typically due to governance rather than capability.
Where In-House IT Can Work Better Under SEBI Scrutiny
1. Stronger Context and Operational Alignment
An in-house IT resource often understands:
- Fund workflows and urgency patterns
- Partner preferences and deal sensitivities
- Internal approvals and escalation routes
This can reduce friction and workarounds and improve adherence to policies.
2. Faster Internal Decision Cycles
When leadership empowers in-house IT, decision-making can be faster on:
- Access approvals
- Tool standardisation
- Incident containment actions
This is valuable during incidents where time and clarity matter.
3. Better Control Over Sensitive Access
In-house teams can implement tighter:
- Privileged access management
- Internal approvals for high-risk changes
- Enforcement of data handling rules
This advantage holds only when in-house IT is mature and properly governed.
Where In-House IT Often Fails Under SEBI Scrutiny
1. Single-Person Dependency
Many AIFs rely on one internal IT person or part-time consultant, creating risks such as:
- Absence or attrition
- Knowledge concentration
- Lack of segregation of duties
SEBI and auditors view this as operational risk unless offset by strong controls.
2. Limited Security Depth
IT generalists may manage devices but struggle to:
- Assess vulnerabilities effectively
- Monitor security events meaningfully
- Maintain evidence discipline for audits
Security maturity often requires specialised expertise.
3. Weak Evidence and Process Discipline
In-house teams often execute controls but fail to document:
- Patch status consistently
- Periodic access reviews
- Incidents and decisions
Undocumented controls are treated as non-existent during inspections.
4. Tool Sprawl and Informal Practices
Internal IT can inadvertently allow:
- Unapproved SaaS tools
- Ad-hoc access provisioning
- Shadow IT
- Inconsistent endpoint standards
These issues are common inspection concerns for lean funds.
Where Managed IT (MSP) Can Work Better Under SEBI Scrutiny
1. Repeatable Processes and Reporting
Strong MSPs industry trends operate with:
- Defined SLAs
- Standard operating procedures
- Automated reporting and ticket histories
This naturally produces inspection-ready evidence.
2. Better Coverage and Continuity
MSPs reduce single-person dependency by providing:
- Multi-resource coverage
- Structured escalation paths
- Continuity during leave, travel, or attrition
This strengthens operational resilience.
3. Stronger Patch and Endpoint Hygiene
MSPs typically run:
- Automated patch schedules
- Endpoint health monitoring
- Compliance dashboards
These controls are frequent inspection focus areas.
4. Faster Adoption of Baselines and Standards
MSPs can rapidly implement:
- Standard device baselines
- Secure configurations
- Centralised identity controls
- Backup practices
Standardisation reduces risk and audit friction.
Where Managed IT Often Fails Under SEBI Scrutiny
1. “Outsourced Equals Not My Problem” Thinking
The most common failure is governance. SEBI’s position is clear:
- Execution can be outsourced
- Accountability cannot be outsourced
If the fund cannot explain controls, scrutiny fails.
2. Generic Service Instead of Fund-Specific Controls
Some AI powered MSP’s lack:
- Understanding of fund-level data sensitivity
- Regulatory readiness discipline
- Trustee-facing reporting maturity
This leads to gaps in high-risk areas.
3. Weak Vendor Governance
If contracts lack:
- Security clauses
- Incident notification SLAs
- Audit-rights language
The fund struggles to demonstrate oversight.
4. Poor Integration With Compliance and Trustees
If MSP reporting is not aligned with:
- Risk registers
- Trustee updates
- Audit evidence requirements
The internal coordination burden remains high.
The SEBI-Ready Model Is Often Hybrid
For most AIFs, the most defensible model is a hybrid approach:
- Internal owner, typically COO or Compliance, accountable for governance
- MSP executing operations, monitoring, patching, and reporting
- Trustee oversight through periodic risk summaries and closed actions
This model delivers governance clarity, operational consistency, scalable security depth, and inspection-ready evidence without heavy internal headcount.
What SEBI Scrutiny Tests in Practice
Regardless of model, SEBI commonly reviews:
- Patch compliance reports and timelines
- Access reviews and privileged controls
- Vendor inventories and oversight records
- Incident response plans and logs
- Backup and restore test evidence
- Governance minutes and decision trails
Funds should choose the model that reliably produces this evidence.
How to Choose the Right Model for Your AIF
Managed IT is usually better when:
- The fund is lean or geographically distributed
- Internal IT expertise is limited
- Compliance evidence needs rapid improvement
- Standardisation and automation are required
In-house IT is usually better when:
- Workflows are complex and highly customised
- Budget supports skilled talent
- Leadership wants direct operational control
- Governance and documentation culture is strong
Hybrid is usually best when:
- Strong oversight is needed with lean headcount
- Execution requires scale and automation
- Security and audit readiness must improve sustainably
How Infodot Helps AIFs Succeed Under SEBI Scrutiny
Infodot Technology supports AIFs with a governance-led managed IT model designed specifically for SEBI inspection readiness. The objective is not only to operate IT, but to demonstrate fiduciary diligence through evidence.
Infodot supports AIFs by:
- Establishing SEBI-aligned IT governance frameworks
- Running structured patch, endpoint, and access controls
- Providing audit- and trustee-ready reporting packs
- Managing vendor oversight artefacts and SLAs
- Supporting incident response and BCP and DR readiness
This enables continuous inspection readiness, not audit-only compliance.
Conclusion
Under SEBI scrutiny, the better model is not defined by in-house or managed IT. It is defined by accountability, governance, evidence, and risk reduction.
In-house IT offers context, control, and speed when supported by mature expertise and documentation discipline. Managed IT offers automation, structure, and continuity when governance ownership remains with the fund. For many AIFs, a hybrid model provides the strongest balance.
SEBI scrutiny rewards disciplined operating models, not headcount. AIFs that align their IT model to scale, risk profile, and governance maturity are best positioned for inspections, LP due diligence, and long-term operational resilience.
FAQs
Does SEBI prefer in-house IT over managed IT?
No, SEBI evaluates governance and evidence, not whether IT is internal or outsourced.
Can managed IT satisfy SEBI compliance needs?
Yes, if accountability, oversight, and evidence of execution are clearly retained by the fund.
Is in-house IT automatically more compliant?
No, in-house IT often fails due to weak documentation, limited security depth, and single-person dependency.
What model do most AIFs adopt?
Many AIFs adopt a hybrid model with lean governance and managed execution for operations and security.
What is SEBI’s biggest concern with outsourced IT?
Treating outsourcing as risk transfer, resulting in poor oversight and weak accountability during inspections.
What is the biggest risk with in-house IT?
Single-resource dependency and limited security expertise that weakens resilience and control effectiveness.
Do trustees care about the IT operating model?
Trustees care about assurance, risk visibility, and evidence, regardless of the operating structure.
Which model produces better audit evidence?
Managed IT often produces stronger evidence due to structured reporting, automation, and repeatable processes.
Is patch management easier with managed IT?
Yes, MSPs typically use automation and dashboards to ensure consistent patching and reporting.
Can an AIF outsource cybersecurity completely?
Execution can be outsourced, but governance, ownership, and incident decisions must remain internal.
Do small AIFs need full-time IT staff?
Not necessarily. Managed services with strong internal oversight often meet expectations effectively.
Why do SEBI inspections highlight documentation gaps?
Undocumented controls cannot be validated and are treated as absent regardless of actual execution.
Can MSPs handle vendor risk management?
They can support it, but contracts, oversight, and accountability must be owned by the fund.
Which model is better for incident response readiness?
Hybrid models perform best by combining internal authority with MSP technical execution.
Does managed IT reduce operational risk?
Yes, it improves continuity and reduces dependency on individuals during leave or attrition.
Can in-house IT reduce security tool sprawl?
Yes, if empowered and disciplined, in-house IT can enforce standardisation effectively.
What is the biggest compliance gap in managed IT setups?
Lack of fund-level governance artefacts such as risk registers and trustee reporting alignment.
How should AIFs govern MSP performance?
Define SLAs, review reports, track remediation, and document oversight decisions consistently.
Do LPs care whether IT is managed or in-house?
LPs focus on cyber maturity, evidence, and resilience outcomes, not organisational design.
Is managed IT more cost-effective for AIFs?
Often yes, as it delivers expertise and coverage without full-time staffing costs.
Does SEBI require periodic IT audits?
Audits help, but SEBI expects continuous governance beyond point-in-time assessments.
Which model supports continuous monitoring better?
Managed IT typically offers stronger monitoring through established SOC and NOC practices.
Can a part-time IT consultant count as in-house IT?
Yes, but dependency risk and weak evidence discipline must be mitigated through governance.
What role should compliance play?
Compliance should coordinate governance, documentation, remediation tracking, and regulatory alignment.
What is best for highly sensitive deal data?
Least-privilege access, strong identity controls, encryption, and documented access reviews.
Can MSPs support trustee reporting?
Yes, when reports include risk summaries, control status, exceptions, and remediation progress.
What is the most defensible model under SEBI scrutiny?
A hybrid model with clear accountability, managed execution, and routine oversight evidence.
Should funds choose a model based on size alone?
No, choice should reflect risk profile, complexity, and ability to maintain evidence.
Does in-house IT always respond faster than MSPs?
No, MSPs can respond faster with 24×7 coverage when SLAs and escalation paths are clear.
How do AIFs avoid generic MSP services?
Define fund-specific controls, require tailored evidence packs, and conduct periodic reviews.
What do SEBI inspections request first?
Patch compliance, access controls, incident readiness, vendor oversight, and governance records.
Do AIFs need a CISO for compliance?
Not usually. A responsible owner with managed security support can meet expectations proportionately.
How does Infodot support managed IT for AIFs?
Infodot delivers operations, security controls, reporting, evidence packs, and SEBI-aligned governance.
Can managed IT reduce compliance burden?
Yes, by automating controls and producing evidence while fund teams focus on oversight.
What is the key success factor regardless of model?
Clear ownership, disciplined oversight, and consistent evidence of control execution.
