Private equity funds have a business imperative to ensure the greatest possible access of capital and the highest level of operating efficiency — at the lowest risk to the fund and its partners.
That’s why, in a highly competitive, rapidly changing global equity marketplace, many US fund managers are finding international fundraising a strategic necessity. Meanwhile, massive pools of foreign capital are pursuing cross-border investment opportunities — with US real estate funds often considered the gold standard for foreign investors seeking safe haven.
These complementary dynamics point to potential mutual benefits. But to fully realize those benefits, general partners must successfully navigate a number of steps, given the risks and complexities involved with raising capital globally— particularly at scale.
On the back-office side, onboarding and compliance are key issues. Registering funds in overseas jurisdictions requires managers to meet specific legal, documentary and sometimes cultural requirements. What’s more, different countries have different protocols and personal naming conventions. A lack of acuity and understanding of these differences can lead to bad data, and a host of downstream problems. Sophisticated, continuously tested quality controls are absolutely critical here.
Then there’s the question of the actual movement of the capital into the US. KYI and AML checks are tricky enough when dealing with domestic investors. But when capital moves to the US via offshore domiciles, the job is significantly more complex. (Consider the disclosures required, for example, where a foreign national in Argentina invests in a US middle-market fund through a Panamanian holding company.)
Once you have successfully onboarded your new limited partners, transparent and timely accounting are the next key hurdle. Today’s winning strategies are often complex: they require sophisticated infrastructure and the ability to simultaneously manage multiple databases, and calculate valuations and carried interest distributions. For foreign investors, many of whom will be entering the US alternative assets market for the first time, the security and visibility of funds are especially important.
On the front-office side, the challenge is in adapting your reporting or web portal to foreign languages and customs so as to make the investment and reporting process more seamless for the overseas investor. This involves an extra layer of complexity — not only because of the aforementioned language and cultural variations, but also due to the intricate structuring involved in many cross-border capital flows.
While there are clearly plenty of challenges involved in fundraising from offshore investors, the good news is that it is possible to manage the risk and win the reward — and to do so smoothly and securely. This recent white paper describes how NES Financial’s data-driven, holistic approach — which embeds quality, compliance, security and business intelligence — is helping managers successfully raise and retain funds in the global equity marketplace, every day.
Chairman, CEO NES Financial
Founder of NES Financial, Michael drives the vision of the company and established the core value of continually raising the bar for best practices and transparency in fund administration. He is passionate about better financial administration solutions delivered through improved utilization of technology, big data insights, greater administrative efficiency, and best in class sector expertise across Fund Administration, EB-5, and 1031 Exchange. Michael brings years of experience, including enterprise class real-time technology solutions for financial risk management, compliance, sales, and marketing. He has previously worked extensively with major corporations such as Intel, Microsoft, Charles Schwab, and Nikon. Connect with Michael on LinkedIn.