The days of black boxes and no-questions-asked financial returns are long gone. Growing pressures from both regulators and investors for more transparency and more rigorous reporting have led to a boon in third-party private equity fund administration services.
That growth has been fueled by more than compliance and competition, however. An equally powerful driver is cost.
According to NES Financial chief executive Michael Halloran, funds spend an estimated $35 billion annually on infrastructure. And general partners are feeling the heat — and the imperative to do more with less — so they can better focus on their core investment mission. To quote John Phinney, CEO and co-president of business intelligence firm Convergence: “Every adviser will tell you they’re not in the business of running infrastructure – they’re in the business of investing.”
So how did we get here, and where is this expanding industry heading?
This informative article from Privcap answers both these questions. It describes how third-party fund administration has evolved in tandem with the maturing alternative asset investment industry, and why it seems poised to play a more strategic role going forward. It outlines how third-party services have expanded from basic back- and middle-office functions like onboarding, accounting, reporting and capital management, to front-office functions such as enhanced compliance, legal and investor services.
Still, while these solutions can and do save costs and drive efficiencies, they tend to reflect a mindset that more closely resembles “plumbing,” as Michael Halloran noted in a recent Privcap video. Fund administration, he argued, “needs to become much more strategic.” It requires more advanced capacities for accessing and retaining capital, and more ways to transform the data it collects into added value for the business.
The good news is that this next evolution of fund administration is already here. In a fully integrated environment, disparate data points — both internal performance data and external market data — can now be assembled, combined, recombined, and analyzed to extract actionable business intelligence. The kind that directly supports the fund’s most important activity: making good investments.
You can read the Privcap article here.