Download the unquote" Fund Administration Report 2011

More documents

Recommendations

Info

Comment Feature Virtue of necessity unquote By Greg Gille Tighter regulatory framework, indepth reporting requirements from investors, elaborate transaction structures; As a mature industry, private equity now has to play to an increasingly complex set of rules when it comes to reporting. For many GPs, fund administration services have therefore gone from a luxury to necessity. Although the private equity industry has worked overtime to get itself out of the post-Lehman quagmire and on the road to recovery, the collective mood remains somewhat austere: Less commitments; Smaller funds; Less deals; Less carry. By contrast, fund administrators seem to be working around the clock, picking up new clients and growing year-onyear. Executive director at JPMorgan Real Estate and Private Equity Huw Jones happily notes: “We increased our number of clients in Europe by 50% and the business is growing in revenue terms by 20% globally.” Independent provider Ipes is also keeping busy, says its commercial director, Justin Partington: “In terms of new clients, we’ve had 11 mandates over the past 12 months. We’ve also seen existing clients continue to raise new funds, even though it takes longer for them to do so as they spend 15 months on the road on average. Overall, we are seeing steady growth at around 10% per year.” It is now believed that between a quarter and a third of European GPs are using the services of external fund admin providers, up from around 10% in 2008. Furthermore, this figure is set to increase in light of the current PE industry landscape. Driving demand Indeed, several key factors are driving demand for external administration services – none of them new, but all reaching a point where the “do it yourself” attitude still prevalent in some GPs’ modus operandi is clearly showing its limits. Regulation is unsurprisingly top of the list – and while recent efforts like the AIFM Directive were greeted as harsh punishment by fund managers, they appear to be a blessing in disguise for administrators. “Regulation is a massive opportunity,” notes Augentius managing partner David Bailey. “The AIFMD allows firms such as Augentius to act as depositaries, and PE houses will have to appoint one whether they like it or not – which should therefore translate to new relationships for us.” Besides the appointment of a depository for their funds, GPs can also see that complying with the upcoming AIFMD will entail stricter disclosure and reporting requirements. The expertise, resources and time required to do so make external administrators an appealing proposition. But the AIFMD has yet to take effect, and it is but one of the complex regulation efforts likely to impact managers going forward – which means that most administrators aim to provide thought leadership as well as practical help. Says Partington: “Regulation is driving demand for admin services, but people are also looking for support. Our clients not only want us to fill out the forms, they want us to help them understand what they need to do in practical terms – they don’t have time to read 2,400 pages on a specific aspect of upcoming regulation. We are spending a lot more time on technical briefings and seminars.” Managers not only have to cope with increased scrutiny from the regulator, but also from their own investors. Burnt by bad experiences following the boom years and under regulatory pressure themselves, LPs are increasingly thorough when it comes to assessing the performance of the funds they are invested in. With a significant number of them looking to reduce their allocation to private equity and therefore concentrating on top managers, failure to meet those requirements is simply not an option for GPs. “If you look at other asset classes, it is very rare for fund managers to maintain their own back-offices, both from a cost point of view and also from an investor point of view. 2 unquote” FUND ADMINISTRATION 2011
Feature The Madoff scandal, among other factors, has made investors much more aware of the potential issues that can arise,” notes Bailey. “LPs are asking more questions, and more detailed ones, about how the back-office is actually run. They want to see security, technology, disaster recovery programmes and so on. These represent significant investments to handle in-house, and yet they are absolutely necessary.” Times are changing GPs have been quick to grasp the relevance of external administrators in such a climate, which is why these firms are able to gain new clients at a time when fewer funds are being raised. Not only are a wider range of players attracted to the appeal of administrators, but managers also tend to be more proactive and demanding when it comes to selecting their partner of choice. When dedicated administrators came of age in the mid-2000s, it was mostly small and/or relatively new teams that comprised the bulk of their client base. This is changing, however, as Bailey points out: “Older groups initially had no choice but to do their own admin, so they have their own back-offices, systems and teams. They are understandably reluctant to move away from this, but life is getting more complicated: more regulation, greater demands from LPs and so on. They realise this is now requiring too much effort and distracting them from what they should really be doing – which is deals and portfolio management.” Jones concurs and notes that smaller groups are increasingly looking to outsource: “At the same time we’re seeing growth in the smaller independent funds that may have come out of bigger institutions. They sometimes don’t want to hire their “Our clients not only want us to fill out the forms, they want us to help them understand what they need to do in practical terms” Justin Partington, Ipes own admin, perhaps due to costs or management overheads. This bifurcation in the market is partly driven by the fact that mid-market fundraising has suffered in recent times.” The administrators’ client base is growing, but it is also becoming more sophisticated. For a start, GPs tend to call in the administrator much earlier in a fund’s lifetime (see box, below). With dealflow slowing down and fundraising taking longer, many GPs have had time to take a close look at who to choose when outsourcing for the first time – or when shopping for alternative administrators if they haven’t been getting the level of service they expected previously. “They tend to see the relationship with an administrator as something like a marriage,” reflects Partington. Therefore they are eager to come to our offices, meet the team, demo our IT systems and also scout out other providers. The most important thing is for the GP to find the right team to support them; this is still a people business.” Bailey concurs and warns that external providers must be on the top of their game: “It’s all about delivering quality. The business we win over from competitors stems from them not getting it right the first time and not delivering on the timeliness front. GPs trust you with an awful lot of responsibility – it is very much a marriage-like type of relationship.” Pure player or one-stop shop? Unsurprisingly, growing demand for fund admin services has resulted in the emergence of a deep and competitive market for GPs to choose from. One of the clearest lines of divide rests on the choice between one of the independent “pure Early bird catches the worm GPs have become more proactive when it comes to hiring an administrator. “I came into this business six years ago and typically at that time you’d get called in for a fund six weeks prior to closing,” recalls one admin provider. “Now GPs tend to call us when they are planning to launch a fund and they are looking at the structure very early on – they realise that they need an administrator on day one or two. We get far less last-minute calls than we used to.” This has partly to do with regulation, as GPs need to name an administrator when establishing a new fund in a domicile such as Jersey, Guernsey or Luxembourg. But PE houses are also perfectly aware that transparency and trust are now pretty high on LPs’ agendas – making respected administrators a useful asset when fundraising. Says Bailey: “A lot of clients like to have an administrator signed up and a reputable name on their documentation before they go out to the marketplace. We help people with example reporting and some of their responses to LPs, provide fundraising data rooms, hold meetings with investors to show them how we work, etc.” unquote” FUND ADMINISTRATION 2011 3
Page 1 and 2: Fund Administration 2011
Page 3: Contents Editor-in-Chief Kimberly R
Page 8 and 9: Comment Treasure island unquote By
Page 10 and 11: Comment tax as standard, no withhol
Page 12 and 13: Comment Professional help By Iain S
Page 14 and 15: Comment Q&A Sticking to your funds
Page 16 and 17: Comment Directory Appleby Trust Con
Page 18 and 19: Comment Directory Deutsche Bank Con
Page 20 and 21: Comment Directory Northern Trust Co
Page 22 and 23: Comment Directory State Street Glob
Page 24: European Private Equity Specialists

Download the unquote" Fund Administration Report 2011

Create successful ePaper yourself

Delete template?

Save as template?