A conversation with NES Financial Senior VP of Sales Christian Lyndes
For any financial service-oriented firm, sales are inextricably linked to the customer experience. For this reason, sales professionals are highly attuned to market, tech and compliance trends, as well as to the evolving needs of fund managers and general partners. They are well positioned to sense what is going on in the private equity space — and what might be coming soon.
With that in mind, we sat down recently with NES Financial’s SVP of Sales Christian Lyndes to get his take on the current state of the fund administration market.
Christian, as a sales leader who’s been with NES Financial for 3 years, what are you seeing right now? What are the main “pain points” fund managers are dealing with?
As I survey the market from my daily interactions, I’d count four major pain points.
The first of these, without a doubt, is compliance. As most people know, the period between 2007 and 2010 — a time of global crisis and major retrenchment in the global economy — was profoundly stressful for capital markets generally, and for alternative investments such as hedge funds and private equity funds specifically.
In the wake of the global meltdown and the Madoff scandal, which erupted in late 2008, we saw the Dodd-Frank Act signed into law in 2010. One result of the Act was that regulatory bodies such as the Financial Industry Regulatory Authority (FINRA) and the SEC began to closely scrutinize hedge funds, which to that point had been only lightly regulated. In response, funds began to expand into so-called “side-pocket investments” — essentially, private equity deals — to help boost overall returns.
The regulators have in turn followed the money into PE, and are now scrutinizing private equity groups more vigorously than ever. I think it’s fair to say that the burden of compliance on this asset class shows no sign of decreasing; in fact, it will be increasing over time.
And it’s not just about Dodd-Frank and US law, of course. We’re adept at helping our private equity clients with their fundraising, both domestic and international, by taking the burden of mid- and back-office administration — including AML, onboarding, compliance and disclosure requirements involved with such transactions — off the backs of fund managers. This is one area where our domain expertise and global partnerships really are making the difference, for both our clients and their limited partners.
Clearly, compliance is a fundamental issue. So what about other areas you’re seeing — in the realm of basic operational concerns, for instance?
I would say that scalability is another huge pain point. When I visit with a potential client, one of the first questions I ask is, “How many accountants do you employ?” For those who don’t outsource, the percentage of accountants on the payroll is typically one-third of all employees — a staggeringly high number.
Fund accounting is not a contiguous exercise: it’s a specialized, extremely complex activity that requires ongoing learning on the part of highly paid accountants. While it’s obviously a critical component of fund administration, fundamentally, it is a cost center. If you ask a fund what their business aspirations are, what their core competency is, none of them will tell you it is simply about hiring more and more accountants. Most funds will tell you that their core competency is raising money and deploying investments in order to secure a good return for their clients.
When you consider that accounting is a fixed cost that grows with every new fund, you realize the difficulty inherent in accomplishing the very thing you need to do in order to grow — scale up your accounting groups.
So what else is keeping fund managers up at night?
I’d have to say cybersecurity. If compliance and scalability are part of the regular course of doing business, cybersecurity is about avoiding an extinction event. Just consider: if you’re a fund, and you get hacked — if your customers’ information and/or their money is in jeopardy — it’s lights out for the business. And that wouldn’t even be the end of the worries. Sizable investors are not going to just take their losses and walk away.
So “How do you deal with cybersecurity?” is a question that I’m always asked. It makes perfect sense when you consider the sensitive nature of the investor information that fund administrators hold for their clients.
This is a bedrock area for our company, something we take very seriously. And I’m happy to say that it’s an area where we shine. On cybersecurity, our record — and our resources, both human and technological — are second to none. While there are always new threats emerging, our cybersecurity results have continued to be flawless.
So how do you do it? What’s your approach to cybersecurity?
Well, it goes beyond just cyber. That is only one aspect of our larger — you could almost call it an obsession — approach to security.
One thing that sets us apart from other fund administrators is that, even though obviously we are not a bank, when it comes to security, we basically act like one. (In fact, we are vetted by the large bulge bracket banks, for whom we act as a vendor.) We literally take every step to ensure security that we can possibly think of. That includes business continuity plans, software, network and social controls, and of course ongoing testing.
And we do it voluntarily — because we understand the sensitive nature of the information that we’re holding.
Every year, we voluntarily submit to an audit of our System and Organization Controls (SOC) — and every year we pass with flying colors. We also regularly do anti-money laundering (AML) compliance testsWe have third parties conduct regular cyber and physical security tests on us, including penetration testing. We even do social engineering drills, where we try to spoof our employees.
From the ground up, we’ve built a single, integrated, bulletproof environment. I think it’s fair to say that the degree of security we offer our clients (and their limited partners) is worth the price of admission of our offering alone.
Are there any other salient pain points that you’re encountering?
The last pain point I’ll mention — it’s also increasingly a must-have for funds — involves reporting and analytics.
Across the board, limited partners — especially larger and more sophisticated ones such as institutional investors — are clamoring for better, more in-depth, more frequent reporting. They’re looking for relevant benchmarks they can understand. They’re looking for more data-analytical intelligence.
Frankly, while funds are definitely feeling the pressure to provide these more advanced reporting capacities, when the rubber meets the road, most are finding these demands to be increasingly burdensome. They’re taking more and more person-hours to fulfill. And you know, that’s not necessarily where they want to be spending those resources. They would rather have their expert accountants engaged in value-creating activity, such as assessing assets for potential investment decisions.
So that seems to be mostly investor-driven. But what about the funds themselves? Are managers asking about things like business analytics that they could use, for instance, for their own investing strategy? Or are you mostly hearing about it in the context of their own customers’ demands?
It’s definitely both. GPs and managers want to know, “Hey, how is my fund doing? Is it going up, down, or is it flat? How are the underlying assets performing?” These are some of the things they are clamoring for — the kind of business intelligence that can help them run their fund. Meanwhile, limited partners are demanding oversight on waterfall and carried-interest calculations, and they don’t mind paying a third-party fund administrator to do the work — an expense that is normally passed through to them in offering documents.
Here again, we are ideally positioned to help them gain that extra value. The reality is, there’s a tremendous amount of underlying asset data and performance data. There’s also external data out in the marketplace. What we’re able to do is to find and integrate that disparate data, apply our proprietary analytical tools, and provide that back to the fund, in real time, as actionable business intelligence.
Every client has a different measure of success, a different benchmark. Our goal is to understand their unique needs and help enable that success. We do this by taking the non-revenue-producing operations within a fund off their hands, so that they can focus on what they do best: raising money, deploying it strategically, winning returns for their LPs, and continuing to grow their own success story.
Senior Vice President, Sales
As a sales leader, Christian has over 15 years of experience driving revenue, building world-class organizations, and establishing winning cultures. As the Senior Vice President of Sales, he works closely with NES Financial’s clients and is responsible for revenue development and retention. Prior to NES Financial, Christian held various sales, strategic partnering, and account management leadership roles at Salesforce.com, where he led the Partner Sales Program for the Banking Sector. Christian spent time working as a sales leader at Marcus & Millichap Commercial Real Estate and was a Business Analyst at The Merchant Bank, Richmond. Christian also worked in various sales roles at Gartner and Thomson Reuters. He holds a BA from the University of New Hampshire.
Connect with Christian on LinkedIn.