Why private funds’ administration technology is now a major competitive differentiator
Fund administration was once viewed as the boring relative at the family get-together: they had to be there, but no one paid them much attention and they added little to the party.
Today, fund administration may still not be the life and soul of the private markets world. But it’s increasingly cherished as a valuable member of the alternatives fraternity, essential to meeting investors’ evolving service expectations and a powerful source of differentiation for general partners.
And fund admins’ technology infrastructures, as a recent industry survey by leading independent private capital administrator Gen II Fund Services revealed, is at the heart of that differentiation.
Private fund support priorities
Private equity firms now rely on their fund admins for an expanding roster of support capabilities.
Transparency demands, as the new SEC private fund rules demonstrate, are on the rise. Limited partners and regulators alike want accurate, timely reports offering greater granularity into positions, performance, risk and fees. According to Preqin’s 2023 Service Providers in Alternatives report, 59% of investors in 2022 said transparency at the fund level can be improved, up from 54% the previous year. Better, faster data to feed analytics and customisable reporting are critical.
Digital service delivery has become key. Investors now expect seamless digitalised interactions at every stage of the relationship. That starts with onboarding and the attendant know your customer (KYC) and anti-money laundering (AML) checks. Subsequent subscriptions, redemptions and drawdowns should be automated and hassle-free. Providing LPs with online portal access to interactive dashboards offering a complete view of their accounts, along with easy two-way communications, is rapidly becoming the norm.
As the Gen II survey observed: “Digital maturity has become a mark of a forward-looking GP, one that has a better grasp on its portfolio and can deliver better insights.”
The shifting global regulatory environment – with its complex, far-reaching demands – is also increasing the compliance burden and risk for private equity general partners. Third-party administrators, with their experience across clients and jurisdictions, can play a central role in helping firms navigate this landscape, both ensuring GPs meet their compliance responsibilities and maintain investor trust.
Pressure for administrators to deliver
These tasks are getting harder. The Gen II survey found almost all LPs (96%) say funds have become more complex in the last five years. Regulations are getting tougher. Speed of service delivery is expected to accelerate (institutional investors are particularly demanding when it comes to how fast they want their data, with nearly half those surveyed strongly agreeing that near real-time reporting will be needed in the next five years). And all the time administrator fees and costs are under pressure.
LPs, noted the Gen II report, “want an exceptional experience.” Yet a sizable proportion of administrators are currently falling short of investor expectations: 22% of limited partners say they are somewhat/very dissatisfied with their fund administration. A further two-thirds are only “somewhat satisfied.”
GPs that can deliver – either with an in-house function or, more likely, by outsourcing to a third party – will stand out from the crowd and be in a strong position to attract and retain investors.
The technology lifeline
Advanced technology offers the solution.
Technology enables efficient data management, reporting automation and secure data access. It improves operational efficiency and minimises errors.
Not everyone has got the message. The Gen II survey found an emerging elite class of GPs (representing 28% of surveyed firms) that are seeking “the most sophisticated technology to address growing fund administration complexity,” since they see it as a key differentiator. On the flip side, almost a quarter of GPs are hesitant about adopting transformative technology — either because they are concerned about the risks associated with changing their admin technology, or are unsure of the benefits that advanced solutions might provide.
Having a sophisticated administration technology infrastructure though is a winning proposition. More than a third of LPs surveyed by Gen II said they are a “lot more likely to invest with a fund sponsor who uses automation in fund administration.” Among large institutional LPs that figure rises to 48%.
GPs that partner with the right fund administrator using the right technology will be a far more attractive proposition for the rising tide of LP private capital allocations.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.