Bring to mind where the private funds industry was two years ago, and it would be easy to feel like you are peering into another age. Most work was done face-to-face, and a great bulk of fund processes remained quite manual. While there was already a great deal of discussion around adding tech to the fund management stack, there was significantly less implementation.
Cut forward to the present, and the level of modernization that has occurred or is in process is quite staggering. More than ever, fund managers are ready to implement futureproofing strategies. As we probed the industry in preparation for the Future of Fund Services report, these are just three of the key takeaways.
It’s time to plot a new course
At this point, we all hope that the pandemic is firmly in the rearview, though the latest Omicron variant is again raising alarm bells. And while there are still lasting effects yet to be dealt with, it does feel like maybe, just maybe, we can begin planning for the future.
“ In all our jurisdictions, finding and retaining talent in the private assets industry is currently a significant challenge ”
One prevailing trend among private fund managers is the broadening of asset classes on which they focus. “We think that the biggest challenge is the increasing complexity of managers who are diversifying into multiple asset classes to meet the demands of institutional investors,” says Citco head of fund services Jay Peller. “They’re not one-trick ponies any longer, with hedge funds moving into private equity, private equity firms launching closed structures for credit and many alternative asset managers launching real estate and infrastructure vehicles as well.”
With all of this cross-asset class activity, it’s more important than ever that CFOs consider where their funds will need to be in the coming years to stay competitive.
Tech is the tonic that private funds need…
“The reality is that the pandemic sped up a lot of the digitalization process that was already underway and showed how nimble we can be when it’s a necessity,” says Peller. “I’d suggest any manager makes sure that their service provider has a roadmap for a future: a path to increase automation, machine learning, and tap the vast powers of today’s technology.”
In the private markets of today, executives need to know so much more about technology than ever before. Terms like data lakes, predictive analytics and machine learning have become central to private fund management. But technology isn’t just going to be critical in managing processes. It’s also important for managing relationships.
“The future is going to be all about getting with a portal,” says Sanne global head of private equity David Fowler. “GPs are looking to demonstrate their firm’s value-add to investors from both a performance and investor experience perspective. With the right solutions and services providers, funds can create an excellent LP experience that takes every opportunity to anticipate LP needs and add value.”
“ The reality is that the pandemic sped up a
lot of the digitalization process that was
already underway ”
And while portals can help a fund manage existing relationships, onboarding technology is just as important in building new ones. Large institutional investors writing large checks can justify the costs and time it takes to manage a manual onboarding process, but smaller LPs and those interested in making more conservative commitments might be less keen on a complicated and costly process.
“A lot of the GPs we speak with have a barbell distribution of investors,” says Anduin CEO Eliot Hodges. “On the one side there are a few large institutions writing big checks, and managers are happy to onboard them manually. But on the other side, they have smaller LPs that cost them so much time, money and effort to onboard, that it makes it prohibitive to bring them into the fund without increasing fees, even though there are vast sums of dry powder in this pool. And no GP wants to miss a target because of the administrative burden. That static PDF onboarding motion is dying off, being replaced by what we call ‘onboarding 2.0’ precisely because it doesn’t allow for what GPs or LPs need from the process.”
… but people remain the most important asset
According to a survey of private funds CFOs in June 2021 by affiliate title Private Equity International, talent management was the most important issue for a portfolio company in achieving a successful investment cycle in this altered environment. Pierre Weimerskirch, managing director, Luxembourg, at Sanne, tells Private Funds CFO: “In all our jurisdictions, finding and retaining talent in the private assets industry is currently a significant challenge.”
At the PEI CFOs and COOs forum in August, panelists said that one benefit of the pandemic from a personnel perspective was that it allowed them to search for talent outside of the traditional financial centers. On the flip side of the coin, some at the conference voiced concerns that the dispersed worker mix has impacted their ability to create an atmosphere that allows for informal mentoring.
And that brings to the forefront what is perhaps the most complicated challenge of the new professional paradigm. As one panelist put it: “I haven’t worked this hard in 25 years of my career. There’s no way we could have gotten through the last 15 months with the added commute.” The takeaway is that firms will need to decide what is more important moving forward: maintaining the level of productivity that was possible in a fully remote environment, or letting go of some of that productivity to bring back the kind of office culture and networking that private equity has always relied on.