Dublin, 31 May 2017
Historically, alternative investment fund structures fell into one of two neat categories: open ended hedge funds or closed ended private equity funds.
In the last few years the market has seen an explosion in hedge funds displaying many of the features of private equity funds – e.g. closed ended, limited liquidity, performance fees only payable on asset realization – and private equity funds investing in many liquid asset classes.
The result is that fund managers and their service providers must evolve their infrastructure to be able to service these new hybrid structures.
Centaur presents five reasons why legacy administrators have been losing out in their attempts to service hybrid funds:
1. TECHNOLOGY DEVELOPMENT RESTRICTIONS WITH TRADITIONAL PRIVATE EQUITY FUND ADMINISTRATORS
Traditional private equity fund administrators tend to lack the technology to manage hybrid funds. They rely on very basic systems which have been developed to cope with private investments and which simply cannot cope with the new realities of their clients’ business. Several clients have transitioned to Centaur following mounting frustration at the limitations of their private equity fund administrators. By moving to Centaur, these clients are able to develop new products and report their performance using the most innovative systems in the market.
“Centaur’s combination of third party systems and bespoke technology ensures innovation is always kept on our radar”, says Eric Bertrand, Founding Partner of Centaur Fund Services.
“Our combination of both private equity fund and hedge fund technologies supports multiple investment strategies, so clients can be innovative and maintain a competitive edge.”
2. SILOED APPROACH OF MANY ADMINISTRATORS IS LEADING TO HUGE FRUSTRATION AND INABILITY TO INNOVATE
Many administrators have moved to a model whereby the use of functional silos – often in multiple low cost jurisdictions – has led to an inability for them to deviate even marginally from their core basic processes.
As a result, innovative new structures designed by lawyers and tax specialists reflecting new complex commercial terms between managers and investors are hitting a brick wall as the siloed approach of administrators is unable to respond to new structures and fee mechanisms.
“At Centaur we pride ourselves on our client service and organize our staff in client facing dedicated teams in locations which are convenient to our clients. We listen to our clients and evolve individual servicing models tailored to the specific needs of each client”, comments Eric.
3. DEMAND FOR OPERATIONAL EFFICIENCY AND GREATER ACCOUNTABILITY
Successful managers have responded to investor demands by offering greater transparency and access to all asset classes via one vehicle rather than having to invest in many. This hybrid flexibility gives managers a competitive edge, by driving down costs and improving operational efficiency. It also brings significant complexity for administrators, requiring new reporting models and multiple additional services.
“As a solutions-focused firm that supports clients, Centaur goes far beyond the confines of Fund Administration. Rather than supplying a suite of individual products, Centaur acts as a single source that delivers overall administration strategies to our clients, covering both hedge funds and private equity funds”, says Eric.
4. COMPLEX STRUCTURES AND REGULATIONS REQUIRE EXPERTISE
The implementation of regulation, such as AIFMD and FATCA, has added a level of complexity to multi-layered fund structures. This has seen costs rise for all regulated firms as more capital is invested to meet regulators' demands. It makes economic sense for managers to outsource regulatory compliance functions to expert providers where possible. Administrators have been stepping into this role in recent years. They have the necessary skills and data to ensure that all funds comply with regulatory requirements. The same applies for complex structures, where the hybrid model reduces operational errors, delays, inaccuracies and risk associated with multiple fund structures.
Eric comments, “Centaur’s clients have access to our team of financial services' professionals with decades of regulatory experience. This is invaluable for the smooth operation of multi-layered fund structures and is a core part of our service.”
5. INTEGRATED AND TRANSPARENT REPORTING IS THE NEW STANDARD
Managers want high quality, accessible and customized reporting from a single source and in a form that meets the managers, the investors and in many cases, the regulators' requirements. Successful administrators need to able to create robust and accurate reporting in a single report drawn from multiple sources.
“Centaur looks to solve our clients' hybrid requirements by offering a full range of reporting capabilities,” says Eric. He continues, “Our reporting solution can generate data from hedge funds, private equity funds and Hybrids all to be presented in a single report.”
Eric concludes, “Centaur’s hybrid solution has rapidly gained popularity in recent years. Our success derives from our partnership model rather than product based models,” says Eric. He continues “We solve clients' needs with our hybrid model that combines the best in fund administration with specialist private equity services.”