Consider the disparate technology systems used in private equity fund administration. Between back-office, middle-office, investor relations, and compliance, the different technologies being used may contribute to critical inefficiencies and unnecessary exposure to risk. The back-office fund accountant and fund accounting groups may be using Excel and SS&C, which lack integrated technology systems and require manual waterfall calculations. The middle-office may use Advent, which carries executional risk. Investor relations using Oracle technologies face costly and inflexible challenges. Compliance using QuickBooks and Peachtree for time to market (TTM) and return on investment (ROI) calculations face cumbersome systems and organizational difficulties in multiyear deployments. The use of several different technologies between different departments is inefficient, costly, and disabling for fund managers looking to quickly respond to investor and regulator inquiries. So why aren’t more PE firms adopting a standardized, integrated end-to-end solution that consolidates accounting, compliance, and reporting infrastructures?
The first hurdle to clear is finding digital solutions for investment. With 61% of polled PE fund managers naming system selection as the principal barrier to implementing technology solutions, finding a system that addresses existing operational challenges and meets the needs of tomorrow is a significant issue. The second hurdle to clear is selecting which specific operating functions to outsource to third parties. While there is an understanding for prioritizing an overhaul of technology architecture to rationalize and standardize costs, PE fund administrators face friction with increased demands for core competencies beyond those currently in-house. Yet the growing trend is that PE funds of all sizes can benefit from asset servicing that delivers leading-class expertise, economies of scale, and greater degrees of adaptability on highly cost effective terms. The third hurdle to clear is an on-going concern about cybersecurity. The concern about cybersecurity translates into “ring-fenced servers” that prevent the connectivity to other integrated technology systems. Establishing a comprehensive cybersecurity strategy as a fundamental cornerstone of a larger business plan ensures due diligence in the unpredictable cyber world.
For some, developing in-house solutions remains a priority. However, firms facing build-or-buy decisions are increasingly realizing the value of outsourcing to a third-party solution. More so than ever, the “buy” decision is progressively more appealing with scalable, end-to-end solutions that offer integrated data aggregation and transformation, process management and efficiency, data management and analytics, treasury services and audit trails, as well as mass on-boarding services. Third-party solutions that offer robust technologies complemented by highly differentiated domain expertise offer sustainable competitive advantages. The practical implications of outsourced technologies, such as a secure investor portal or a fund manager portal, are improved communication between investors and streamlined documentation of performance and risk analysis. Consolidating accounting, compliance, and reporting infrastructures enable funds with resource constraints to efficiently deploy and operate a comprehensive, institutional-quality fund administration solution through the entire investment life cycle.