In his Theory of Evolution, Darwin referenced survival of the fittest, a species’ ability to adapt to changes in its environment by developing characteristics that would help it survive. This adaptive ability typically develops in a species over time, sometimes taking hundreds or even thousands of years. In today’s private equity fund administration climate, however, fund managers are expected to adapt extremely quickly to keep pace with the rapidly evolving landscape. Even the nimblest fund managers are finding it challenging to respond to an increasingly demanding regulatory environment and subsequent demands on their in-house compliance and accounting functions.
The global financial crisis of 2008 has resulted in heightened scrutiny from regulators across all asset classes, including private equity and real estate, which were previously not a focus of regulatory bodies. It is unlikely this increased regulatory scrutiny of private equity and real estate funds and fund managers will diminish anytime soon. The SEC indicated that private equity and real estate funds would be a focus of their investigations in 2016. As a result, CFOs and other senior managers are faced with increasing compliance activities to meet these new regulatory demands, while also continuing to provide the same level of functionality across the organization from a financial and investor reporting perspective. The ability to adapt to this changing and evolving regulatory engagement is key to maintaining a competitive advantage in the private equity and real estate arena. Unfortunately, many in-house accounting and compliance functions are burdened by legacy infrastructure and outdated technology to meet these new demands.
As CFOs are forced to respond to external pressures by restructuring and redesigning their systems, processes, and business models, what survival characteristics do they need to adopt in order to remain an efficient and effective operation capable of addressing this increasing burden of regulatory and institutional investor demand? What should a fund manager who is trying to achieve operational excellence pay particular attention to?
Here are our top six considerations. We’ll cover each of these in more detail in upcoming blogs, along with specific solutions.
1. How are you managing your data?
Fund managers must be able to respond readily to the request for new types of data, such as risk reports, accessing investor documentation, and providing detailed fee information quickly and accurately. Are your data management systems ready to handle the amount and frequency of data reporting required by the SEC and others?
2. Does your team have the right skill sets? Are your accounting and back-office personnel consistently busy?
New regulatory demands require that a fund’s employees have the talent necessary to provide transparent reporting and help avoid risk. The most successful funds are those that will invest in developing their personnel’s skill sets and in helping existing employees adapt to new roles. But this takes time and money.
3. Can you meet the demands for customized reporting requests?
Investors are now making frequent requests for specialized reports and customized templates. Organizations must be set up to proactively respond to the escalating requests for more transparent information by reviewing their compliance policies and procedures and evaluating their current compliance infrastructures, including people, processes, and procedures.
4. Are your technology systems integrated?
A standardized, end-to-end solution is the best way to consolidate your accounting, compliance, and reporting infrastructure and allow you to maintain efficiency and enable better responsiveness to investor and regulator inquiries.
5. Is your data secure?
As you transform your systems and processes, are you making cybersecurity a top priority? Unfortunately, as you become increasingly connected through your website, social media presence, and ubiquitous use of cell phones and cloud services, you become more vulnerable to cyber-attacks.
6. Are you ready for an audit?
Being prepared to respond to a new and complex regulatory environment requires an overarching strategy that includes not only a revamped data infrastructure, but also a detailed timeline and roadmap for that response.
For some fund management companies, in-house solutions remain the priority. However, for growing firms and firms facing build or buy decisions, the possibility of outsourcing must be strongly considered. At NES Financial, we provide an end-to-end solution that addresses any firm’s escalating volume of investor and regulatory demands, while integrating those solutions into a comprehensive fund administration platform. NES Financial’s Fund Administration Solutions allow your management team and staff to stay focused on doing important things like managing the investment portfolio, exploring new investment opportunities, and raising/retaining capital. The NES Financial platform minimizes your resource constraints, maximizes transparency for institutional investors, and helps firms manage the new regulatory realities.