The Private Capital market has grown to a booming $10trn of assets and Prequin predict it shall hit $16trn by 2026. Goldman Sachs goes further to say that with the right economic conditions, that figure could be as high as $30trn!
Keeping up with growth of this nature creates many challenges however advancements in technology and processes have enabled administrators to keep pace on a global scale however, the entrepreneurial nature of the Private Capital market continues to challenge business models as it matures.
Complexity exists in every corner. International structuring, a la carte investor terms, co-invest, multi-currency offerings are just a few of the areas that can quickly break the model. If we combine this with the global growth in fund administrator operating models and a necessity to standardise service delivery and technology to enable that growth, it’s hardly surprising to see a divergence in client requirements and the service received. Still, Private Capital Managers are reluctant to change administrative providers fearing the grass is not greener and the process of transfer too complex and risky.
We set out some of the considerations to provide comfort that there is a playbook to navigate through these short-term challenges and to create a long term partnership that enables your organisation to keep pace with the fast moving requirements of the private capital market.
Be honest about your requirements
Cultural and operational alignment is critical. Private Capital Managers who need to close new investors, make capital calls, or make new investments frequently, at the last minute, late at night, will stress operating models that do not have the capacity to be flexible and apply adaptive governance. By making your expectations clear, you can expect less friction in your day-to-day operating model once the resourcing and operating model is designed properly. Cost considerations should be secondary to defining the right operating model to deliver on your requirements upfront.
Where a tailored service arrangement is required, be sure to test that your administrator can customise delivery to the extent it is needed.
Great partnerships require operational stability yet the ability to grow. A service provider with an aggressive acquisition strategy will have multiple challenges across HR, Technology, and rigid operations risk management. When managed well, the outcome can create genuine client and shareholder value but as with all projects, there can be waves. Conversely a partner that does not grow cannot invest and your service may suffer in the long term. Growth needs to be measured and sustainable to enable a positive client and shareholder dynamic but not at the cost of operational flexibility. Be clear about the direction of travel of your administrator and seek a partner whose strategy has a positive enduring impact on your operating model.
Planning, communication, and handling complexity
Effective communication between organisations is often overlooked in the planning stage of a fund migration to a new provider. Expectations are set during the administrator selection process without either party really understanding the requisite level of planning to unpack all the detailed requirements of the Client. This often leads to a delivery that falls short of the brief and immediately places the relationship under water from a quality and economic standpoint.
Skilled communicators can bridge this gap by ensuring a clear scope of deliverables are properly understood by both parties allowing subject matter experts to provide the technical analysis upfront so that expectations are realistic, can be detailed in a Service level Agreement and costed properly.
Plan for challenges in the short term. Consider that terminating your incumbent administrator will need delicate management and will likely have a cost to exit. Your new administrator will be able to balance the equation with a reasonable set of requirements to ensure your data, records and operational knowledge land in good order.
A fund in its mid life will have a considerable data legacy. Mapping that historic data to a new accounting system is time consuming and will also require cleansing of underlying data to ensure a consistent accounting history. Experience with data enrichment and transfer tools is critical to ensure that advanced features of the operating model, like a GP or LP portal, may be used reliably from the get go. Ensure your administrator has a clear understanding of how to achieve a good data transfer and the resources to enable it.
Be clear about your pricing objectives and whether they align to your requirements. Sustainable tailored service solutions do not lend themselves to a low-cost functionalised operating model.
An experienced administration partner will be able to introduce master services agreements that create contractual and pricing simplicity for the inevitable add-ons that are required throughout a funds life. This will reduce the frequency with which you have to negotiate a fee schedule enabling your teams to focus on delivery.
Working with a provider that values good market conduct ensures that termly pricing review will identify areas of both saving and incremental resourcing that should be met to enable the service model to be resourced properly. Understand how this review will take place and the information systems that support it. Strong transparent data will reduce unnecessary negotiation and discontent.
Is it about technology, process, or people?
It’s about delivery… Technology advancement has been rapid in Private Capital and self-service tools such as GP/LP Portals, system integrated workflows, electronic investor onboarding have enabled a reduction of human interference in processing.
However, to my earlier point, if your funds structure and terms are complex, varied and fast moving, then Technology is only part of the solution. We believe that fund administration remains a people business so retaining, recruiting and developing those people is essential. But realistically, staff changes happen so it’s imperative to embed knowledge into robust processes to protect your service.
Work with a provider that can help you identify these challenges early in the sales process and can resource accurately around it.
Our firm view is that through effective planning and with the right expertise, complexity and risk can be managed for a successful transfer. Finding an administration provider that has a sustainable growth plan without the distractions of wider corporate actions is essential in striking a long-term successful partnership. In our experience, every Private Capital structure requires a tailored service and technology solution and only a successful combination of the 2 supported by a strong team will deliver to your needs and fully support your strategic objectives.
The Belasko Group –on point tailored service solutions.
Author : Ross Youngs – Group Commercial Director
Ross joined Belasko in 2021 to lead the Groups commercial growth strategy in Private Capital Fund Administration, Corporate Administration and Fiduciary services.
He has over 20 years’ experience in the Offshore Fund and Fiduciary markets holding leadership roles in Alternative Assets, Sales, Relationship Management and Client Service for a global provider.
Working with managers across the UK, US, Europe and Middle East, Ross has helped clients launch fund and investment structures in the Private and Public markets focusing on Private Capital and Real Assets.