Taking real estate and private equity to the next level

PE and RE funds sometimes feel ignored by software companies. But service providers can make a real difference

Banks, securities investors and hedge funds enjoy access to many powerful and well developed financial services software solutions. But private equity and real estate funds aren’t so lucky. They feel they are forced to rely on an untidy and inefficient mix of technology: thirdparty solutions that provide basic general ledger functions; custom and home-grown processing applications; and, for specific tasks, the magic of Excel spreadsheets.

Private equity and real estate funds say that stagnant administration technology in their sectors is a real problem. Users complain that some solutions have not been significantly updated for decades. This means the technology lacks vital functionality and there is a dearth of integrated, end-to-end solutions.

Many believe that the root cause of the problem lies in the lack of competition amongst providers – and a resulting lack of investment by the software industry in solutions for these asset classes.

Deeper functionality is sometimes available to private equity and real estate funds if they opt for software that isn’t targeted at financial services companies. Providers such as SalesForce and PeopleSoft can, for example, satisfy some of a real estate fund’s customer relationship management needs. But these generalists are unable to cope with a firm’s list of intricate financial and management requirements, which include portfolio accounting, performance reporting, efficiency reporting, document management with customised web access and hosting of complex entity structures.

The chances of generalist providers being able to deliver transaction processing and reporting at the level of individual investors and investments (or – in the extreme case – at tax lot level) is practically zero. Once again, complete solutions can only be created if the firm opts for significant and expensive customisation or offline supplements.

Part of the problem, from the technology provider’s point of view, is that private equity and real estate funds don’t use standardised structures for their day-to-day transactions. This makes it difficult to develop general products that fit their needs.

Bridging the gap in provision

However, some providers are making real progress in this sector by focusing on areas of business where they can best help firms. For example, one of Citco’s major objectives is to implement process and functional automation efficiencies. This, it argues, will enable it to bridge the gaps in existing solutions

For firms that are looking to automate their processes, it’s important that they do not focus entirely on what the technology offers on paper. An emphasis on integration with a firm’s systems is key to the delivery of prompt, reliable and transparent information. Access to that reporting output, as well as to various dynamic reporting capabilities and to the application itself, will enable a firm to receive the full benefit of their investment as an active user, instead of only as a spectator.

Outsourcing brings benefits

Outsourcing of the fund administration capability can also help at this point. Outsourced software does not need to be maintained in parallel on the client’s side, saving time and money, and improving reliability.

Citco’s PE/RE Fund Services Group, which services private equity and real estate funds, believes in complementing proven, market leading vendor software with custom solutions that extend functional reach and business process integration. In this way, funds that it services gain access to an optimal technology environment that is scalable and leverageable.

Citco’s PE/RE group has also recently invested in the bespoke waterfall application “CitcoWaterfall™” and in an industry-leading reporting solution. Finally, it seems, private equity and real estate funds are getting the support they need.

27th February 2014