PRIVATE EQUITY: WHY OUTSOURCE FUND ADMINISTRATION?
As the outsourcing model becomes an increasingly popular option for PE managers, Centaur, a Waystone Group company, 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 efforts on their core functions and investing clients’ funds. Fund administrators also provide added value with skillsets that may simply not be available within PE managers.
Increasingly, PE administration requires significant investment in processes, resources and technology. Through outsourcing, the fund manager can support their business with best in breed infrastructure and technology whilst benefiting from the economies of scale of an established fund administrator. Managers can also quickly and efficiently scale their business, making them more flexible and open to market opportunities.
3. Increasing Regulatory Pressure
AIFMD, FATCA and Dodd Frank are just some examples of complex regulations that now impact PE funds. Outsourcing regulatory compliance functions to expert administrators ensures that funds and their general partners reduce their regulatory risks and overall administrative costs.
4. Investor Demands for Greater Independence and Transparency
Investors are demanding operational excellence from their funds and are increasingly demanding the specialist reporting and independence of a third party administration. The trend to outsource is being driven by market pressure on firms to deliver accurate reporting with greater transparency. Using a third party administrator provides an independent eye, gives managers additional credibility and provides investors additional peace of mind.
5. Increasingly Complex Structures
As the regulatory framework grows and GPs seek investors based in a variety of jurisdictions, fund structures have become more complex than they were ten years ago. Third party fund administrators handle the demands of more complex structures that operate across multiple jurisdictions and legal forms, in a manner which is difficult for GPs to achieve on their own.
6. Access to Technology
Private equity firms are realising that excel spreadsheets won’t suffice anymore. Spreadsheet risk is a real concern and a risk which institutional grade investors may not accept given the availability of industry specific accounting platforms. GPs are growing more serious about offering the long-term reliability and audit trail provided by third party administrators. Leading fund administrators invest heavily in their technology platform. This ensures automated, transparent, customisable and most importantly, secure reporting. PE managers can reap the benefits of these systems without the cost and time associated with implementing and maintaining in-house systems.
Des Johnson, Global Chief Revenue Officer at Waystone, says “More companies are choosing to outsource their fund management and administration. When private equity firms reach critical mass, they quickly realise it’s time to look for a third-party administrator. It can be an easy transition since fees for an independent fund administrator are considered a fund expense so aren’t paid by the GP.”
He continues: “At Waystone, we ensure the smooth on-boarding of private equity funds by removing complexity, uncertainty and unfamiliarity. By Engaging Waystone, GPs have access to a single-source solution that offers the best people, backed by the best processes and technology in the industry.”