Private equity firms find answers in technology
Private equity firms have a growing need for technology that is driving many to outsource administration either entirely or partly. The regulators’ greater scrutiny of the industry, investors’ wishes for greater transparency and a general drive to improve the efficiency of administration are all playing a part.
While administrative tasks such as keeping funds’ general ledgers and tracking carried interest were previously typically calculated on Excel spreadsheets, many firms are now turning to automated solutions.
Some large firms are choosing to create the necessary technology infrastructure in-house but a growing proportion are turning to third-party administrators and other providers.
Growth in outsourcing
In hedge funds, outsourcing is the norm. 80-85% of hedge funds outsource all or part of their administration, compared with about 30% of private equity firms. Now there appears to be a trend towards big, established private equity firms administering their funds in-house but choosing to outsource specific technology-dependent tasks, such as waterfall calculations.
New private equity managers are increasingly choosing to outsource administration entirely, with as many as 80% opting to do so. They are seeking to minimize start-up costs, focus solely on raising and managing money, and benefit from best-in-class technology solutions.
Technology is increasingly making the growing number of routine tasks far simpler. For example, anti-money laundering and know-your-client checks are all becoming automated. Similarly, Institutional Limited Partners Association (ILPA) reporting can be automated. Use of technology to perform these tasks makes them far easier to audit.
New technology solutions
The Citco Group of companies is reacting to this trend by developing new technology solutions, many of which were launched in 2016. We have created standardized LP and ILPA reporting, as well as an automated waterfall tool. For real estate funds, we have partnered with specialist software provider Investran to provide an administration tool.
Equally importantly, 2016 saw the launch of CitcoOne™, our new web portal. CitcoOne™ provides a simple way of accessing all the data handled by Citco on behalf of clients, including real time transaction reporting. Investors can see changes to their capital statement almost as soon as they invest in a fund. Fund managers can oversee Citco’s work through the portal, so they don’t lose control of information.
Clever use of technology through outsourcing is beginning to give some private equity managers an edge. By outsourcing they improve efficiency through access to best-in-class technology and an expert international network of people. They also benefit from the transparency of having an independent firm carry out their administration.
In 2017, The Citco Group of companies will continue to improve its technology solutions, investing in our waterfall tool as well as CitcoOne™, while continuing to work closely with clients to meet their specific needs.