Fund managers are facing multiple pressures, including raising and retaining capital, finding appropriate investment opportunities, and generating returns that exceed investor expectations. Their survival depends on an ability to adapt to the swift currents roiling the industry — including investor demands for greater transparency and ever-growing reporting complexity — without disrupting their primary objective of managing the investment portfolio.
Many of the “pain points” funds face constellate around PE fund administration, and the ability to provide the necessary reporting to meet these investor expectations. Michael Richards, NES Financial’s Senior Vice President for Fund Accounting, explains how NES Financial’s technology focus, domain expertise and entrepreneurial energy position the firm to meet both today’s requirements and tomorrow’s investor demands.
A culture of “intelligent nimbleness”
Over my two-decade-long career working in alternative investment fund administration, I’ve had an ideal vantage point from which to observe the profound changes this asset class has experienced — economic, regulatory, operational and technological. I’ve also witnessed firsthand the slow-footed approaches that legacy third-party fund administrators have taken to address today’s rapidly evolving investor demands — and the enhanced accounting needs required of private equity fund managers to satisfy them.
I decided to move from a large institutional bank to NES Financial to join what I see as a next-generation, data-driven third-party administrator, with domain expertise in both fund accounting and data management. NES Financial’s unique skills in these areas, and its ability to respond quickly to changing market conditions, were key drivers in my decision. In contrast to the top-heavy management, historical staffing structures and antiquated, legacy processes of large incumbent players, NES Financial’s culture and practices are guided by the polestars of innovation, rigor, agility and efficiency.
The market is evolving fast — and is demanding solutions that keep pace. Not only are managers looking to protect their margins and cut costs through automation and scale, there’s also a growing desire to “turn data into dollars” through advanced analytics that could allow them to generate actionable business insight in areas such as risk management and investment performance.
NES Financial’s quality of “intelligent nimbleness” enables us to respond quickly and effectively to these evolving needs. It also positions us to address some of the industry’s key fund accounting pain points — compliance, carried-interest calculations and timeliness of financial reporting.
Why technology, transparency and speed to market are crucial
One of the qualities that distinguishes NES Financial from a traditional fund administrator is our unique approach to complex accounting transactions, automation, and financial and investor reporting. As a Silicon Valley-based company, our stance is innovative and entrepreneurial. Instead of creating another complex spreadsheet solution that relies on its developer for ongoing maintenance, we focus on solving problems with advanced technology, grounded in human domain expertise.
The NES Financial fund administration offering was built from the ground up as a rock-solid, holistic, data-driven solution. But it was also designed to be flexible. That agility enables us to respond swiftly to new market demands with enhancements to our technology, and to bring them to market faster than legacy providers can.
That’s a good thing, because when it comes to fund accounting and financial reporting, the changes buffeting the industry are significant. Even more significant is the impact they will have on a fund manager’s future business.
The compliance requirements for this once-lightly-regulated industry have increased drastically, and are causing significant strain on private equity manager operations. As new regulations or accounting pronouncements emerge or evolve — be it through the Dodd-Frank Act, the Alternative Investment Fund Managers Directive (AIFMD), or the Common Reporting Standard (CRS) or Foreign Account Tax Compliance Act (FATCA) — funds must swiftly and accurately adjust how they account and report certain investments.
Transparency isn’t just a matter of compliance, of course. Sophisticated limited partners are increasingly demanding more visibility and granularity into the data underlying their holdings, to facilitate their own risk analyses for present and future investments. Using an information-rich portal, NES Financial supplies an unmatched degree of transparency, look-throughs and analytic capabilities to both our clients and their investors — far more data than they would get from a traditional administrator.
Pain points and point tools: Relief is in sight
When it comes to the other industry pain points — such as the growing complexity of carried-interest calculations and the need to improve the timeliness of financial reporting — NES Financial continues to focus on delivering industry-leading solutions.
Carried-interest calculations are a headache for private equity fund managers. That’s because of the numerous permutations of the calculation inputs — which often must be interpreted individually by the manager — as well as the carried-interest allocations and distribution calculations, which require manual entry using self-formatted tools such as Word and Excel files.
While no fund administrator has come up with a single, automated solution that would cover every fund’s carried-interest calculation, NES Financial continues to focus on continual improvement — and our culture of agility and innovation — to find solutions and bring them to market earlier.
Our data-centric fund administration solution can also help shorten the delivery window for financial statements. While most funds push up against the 120-day timeframe (at least 60 days of which are attributable to the availability of industry data), any improvement in the last 60-day frame translates into a clear market advantage for the fund, and can help generate increased capital flows.
Meeting today’s requirements, while preparing the technology to handle tomorrow’s changes
As a nimble administrator with both industry and technology experience, NES Financial can innovate more quickly and fill gaps that the incumbent fund administrators have not.
Our cloud-based data-warehousing approach to fund administration enables us to seamlessly handle fund accounting, client portals, financial reporting, and investor analytics. And our advanced quality assurance and infrastructure controls mean we can give our clients comprehensive QA metrics and key performance indicators — so they can trust the information they are getting from us.
All of these elements serve to fulfill our mission of bringing our private equity clients a better product, better service, and a better overall experience, from end to end — and from today into tomorrow.
Senior Vice President, Fund Accounting
Michael has brought an impressive investment skillset to NES Financial after nearly 18 years at State Street, where he built his reputation in hedge fund and private equity fund administration within their Alternative Investment Solutions division. There, Michael was responsible for a large global team servicing top institutional fund sponsors and LP customers with a broad spectrum of alternative investment product types. His background in alternative fund administration and financial reporting with leading private equity fund sponsors has enhanced NES Financial’s approach to complex accounting transactions, automation, and financial and investor reporting, and is bolstering our rapidly expanding presence in the private equity fund administration space.
Contact Michael on LinkedIn to comment or ask a question.