Dublin, 19th September 2018
Hedge funds were early adaptors to outsourcing their fund administration services. Now private equity (PE) managers are enjoying the benefits of outsourcing through greater efficiencies and improved market knowledge. As outsourcing becomes an accepted and growing practice for PE managers, Centaur looks at some of the benefits associated with this practice:
1. FOCUS ON CORE SKILLS
Outsourcing the administration elements of a PE fund allows the manager to focus more efforts on their core competency i.e. investing their clients’ funds. Fund administrators such as Centaur also provide skillsets that are simply not available internally with private equity managers.
2. REGULATORY REQUIREMENTS
AIFMD, FATCA and Dodd Frank are just some examples of highly complex regulations that now impact PE funds. As reporting demands grow, so too does the specialist knowledge which independent third-party administrators are well placed to provide. Additionally, operational risk for PE firms are minimised as continuity of service is ensured by fund administrators.
3. INCREASINGLY COMPLEX STRUCTURES
As the regulatory framework increases and GPs seek investors based in a variety of jurisdictions, fund structures have become far more complex than they were ten years ago. Third party fund administrators are able to handle the demands of more complex structures using multiple jurisdictions and legal forms, in a manner which is very difficult for GPs to achieve on their own.
4. INVESTOR DEMANDS
Investors are demanding operational excellence from their fund and are increasingly demanding third party administration. The trend to outsource is being driven by market pressure on PE firms to deliver tighter accounting processes with greater transparency. Using a third-party administrator adds credibility to firms that move towards outsourcing.
5. ACCESS TO TECHNOLOGY
Private equity firms are realising that excel spreadsheets won’t suffice anymore. Spreadsheet risk is a real concern and GPs are growing more serious about offering the long-term reliability and audit trail that is provided by third party administrators. Leading fund administrators, such as Centaur, invest heavily in their technology platform. This ensures open, transparent, customisable and most importantly, secure reporting, based on client requirements. PE firms can reap the benefits of these systems without the cost and time associated with implementing and maintaining in-house systems.
6. DEMAND FOR SCALABILITY
Historically, launching a new fund took significant financial and time commitments from PE firms. Now, outsourcing much of the heavy lifting of a new fund to a third party enables PE firms to expand their business in a lower risk environment, making them more flexible and open to market opportunities.
Des Johnson, CEO of Centaur USA, believes that the trend towards outsourcing will continue to grow over the next five years. He comments “When private equity firms reach critical mass they quickly realise it’s time to look for a third-party administrator. It is a pretty easy transition since fees for an independent fund administrator are considered a fund expense so aren’t paid by the GP. Increasingly, we are seeing PE funds realise the benefits of outsourcing administrative functions as they follow the hedge fund industry in moving towards outsourcing.”
He continues: “At Centaur, we ensure the smooth on-boarding of private equity funds. We remove complexity, uncertainty and unfamiliarity from the on-boarding process by using the best people, backed by the best processes and technology in the industry.”