Outsourcing utopia
4 January 2024 - Tim Harvey, Head of Private Equity and Private Credit – North America, Senior Executive Vice President, Citco Fund Services (USA) Inc., explains how it is vital to build a real partnership with your fund admin to optimise outsourcing.
How do you help your clients find the most effective model for outsourcing?
There are still many Private Markets firms that like to retain full control their own admin and keep things in-house, but there are many reasons why clients approach us.
For example, they may feel that they have outgrown their internal capabilities and see the benefits of leveraging the expertise of a fund administrator who has a global presence, paired with industry-leading tools and technology.
They may be going into a new regulated jurisdiction, like Luxembourg, and are seeking a partner that operates in that space with regulatory expertise, a local presence and an expansive service offering to support them. Or there may be a reason from the operational side, like launching their first evergreen fund, or their first deal-by-deal waterfall, which requires more sophisticated tools than Excel.
Once they have made the decision to outsource, the real question is what to outsource. Ultimately it comes down to control and data availability. A GP may still want to use their own systems, but with data requests becoming more frequent, the quality and availability of data becomes paramount. A lot of our conversations with clients are around how to get access to their data on a near real-time basis and how to feed it back into the technology infrastructure they use.
Would engaging with fund admins at inception help PE firms create operational utopia?
New PE firms are more worried about fundraising, targeting investments and deploying capital. Led by investment professionals, they want to get the fund up and running first and worry about operations later.
We typically hear clients say: “If we knew then what we know now, we would have done things differently.” They may have set up a structure in a different way, or thought more about attracting the investor base that makes most sense for that fund. Luxembourg is a good way of accessing the European regulated space, but there are cost implications that need to be considered, for example.
Investment managers start out with good intentions and want to allow for flexibility in investor base and investment decisions, but do not always appreciate the increased costs associated with a lack of operational and structuring forethought.
How can the working relationship between GPs and fund admins be optimised?
The relationship breaks down when we are viewed as just another service provider. To get the partnership right, you need to treat your fund admin as an extension of the client side team.
Being involved in strategy conversations means that when a GP is asking questions, we know why they are being asked. If we are seeing similar strategies from other clients, we can help. We steer away from advising clients, but we can share knowledge and experience – and it is here that we can really add value.
It is also important that interactions are respectful and technology can help with that. Simple interactions can be done in a digitised way and workflow tools give everyone visibility and greater accountability. Making data readily available to all reduces the amount of chasing because you can review in real time.
Our technology infrastructure is like a spider’s web and, in turn, can look very daunting and complex, but no one system has evolved to handle all the client scenarios we see in an optimal way. From the client’s perspective, they tend to care less about what platforms we use, and care more about having fast and seamless outputs with a single source of truth, which is our ultimate goal.
This article was originally published in The Drawdown