Feeling overwhelmed by the strain of LP reporting requirements? Getting nervous about the prospect of new SEC regulations and more paperwork to file?
Two veterans of private equity fund administration may be able to help.
Steve Coats, an ex-Riverstone partner and CAO, and Peter Haskopoulos, an ex-Riverstone managing director and CFO, recently founded Petra Funds, a managed service provider to PE and private debt managers. Their goal, Coats told Buyouts, is to offer GPs a first-ever, one-stop shop for back-office solutions.
Petra arrives as the weight of back-office burdens is set to grow. LPs, for example, are stepping up requests to GPs about integrating ESG and diversity criteria into teams, strategies and portfolios, and supplying data for benchmarking and monitoring.
Regulators are also starting to roll out proposals aimed at making private markets more transparent and leveling the playing field. Taking their cue from options floated last year by SEC chair Gary Gensler, initiatives touch on everything from fee transparency and the use of side letters to the need for greater public scrutiny over a fast-growing asset class.
In January, the SEC proposed enhanced Form PF disclosure rules to compel firms to share more data about things like GP-led secondaries deals, GP and LP clawbacks and key-person events. And this month, the agency for the first time proposed a ban on certain practices, such as charges to LPs on unperformed services.
The fresh demands, Coats said, will prompt across-the-board changes to GP disclosure and reporting.
“The days of slowly improving are behind us,” he said. “LPs have become incredibly sophisticated in the past decade, as have regulators. They don’t want to see policies, they want to see practices.”
Large, brand-name PE firms like Blackstone, KKR and Carlyle have sufficient internal resources to cope with increased regulatory requirements. However, smaller managers, who make up the bulk of private-market players, are likely to be harder-pressed to manage compliance.
Petra Funds, unveiled last November, “was born out of frustration,” Coats told Buyouts. “[Peter Haskopoulos and I] spent years doing fund administration and found ourselves asking, ‘Aren’t there outside service providers we can rely on?’”
The answer, he said, is no. While service providers exist to assist GPs with back-office work, most tend to specialize in one or two administrative functions. “There is no one out there doing this in a co-ordinated fashion.”
Petra is designed to handle every task, including fund accounting, GP accounting, investor relations support, compliance, ESG reporting, insurance and technology, and to co-ordinate across them to improve efficiency. It customizes solutions to the client, delivering them on a one-off basis, through a package of services or by lifting out all or part of a firm’s in-house team.
The model ensures all forms of back-office activity are viewed as “inextricably tied to one another,” Coats said. In addition, it understands and has a pro-active approach to handling a GP’s data, which “is what drives all the other functions the CFO has to worry about.”
Key to Petra’s model, Coats said, is its operation as an adjunct to a manager’s senior decision-makers, something his and Haskopoulos’ long careers at Riverstone trained them to do.
“The only way to make yourself an extension of a CFO is to think like the CFO thinks,” he said. “It takes experience, including experience dealing with LPs. You have to be able to see around corners.”
Clients, large and small
Petra is already working with several GPs who fit into three distinct buckets. Among them are large, established firms with comprehensive back offices, who are typically looking for advice or to outsource specific work.
A second bucket is emerging managers who are seeking to build out initial infrastructure as they get off the ground. The third is firms who are raising a second or third fund and are at “a pivotal growth point,” Coats said. “If you haven’t put a process or appropriate procedures in place, it’s incredibly complex to scale.”
Along with PE and private debt managers, Petra may selectively target clients in the LP community, such as family offices. The business, run by a team of about 40 professionals in offices in New York and Amsterdam, will be “onboarding clients at a speed that we can also provide bespoke services,” Coats said.
A number of partners at Riverstone, a New York energy-focused PE firm, backed Petra’s launch through the acquisition of a minority stake.