This article is sponsored by Sanne.
Most GPs have adjusted well to working from home and embraced the technology that entails, yet the Private Funds CFO Insights Survey 2021 indicates interest in emerging tech like artificial intelligence remains muted. Why?
This level of working remotely is a reaction to the pandemic and a requirement to continue operating as a business. Few had a choice. In many cases, given the round-the-clock nature of our industry, firms already had remote or hybrid work-at-home setups and adapted quickly to roll this out to all staff.
New technology such as AI warrants consideration, but addresses a different question. Asset managers are not resistant to new technology – the survey shows they haven’t dismissed AI and think it is coming – but they need to be convinced that it addresses specific needs and helps them to operate more effectively.
This sort of technology will benefit certain managers. For instance, all asset managers need to monitor their underlying portfolio companies and want to be able to access and compare information. For fund of funds or secondaries GPs with the need to monitor multiple underlying managers, AI and machine learning may help sort through hundreds of capital call or distribution notifications. Smaller, direct investors are not necessarily convinced such sophisticated technology is a necessity and thus not worth the investment, time, and effort.
Are firms recognizing a need for a chief technology officer to steer their approach to tech?
It usually depends on the size of the firm. We certainly see more CTOs hired for fund administration platforms given the complexities. From our perspective, we need to have a good technological answer for our clients now in addition to a vision for how we will improve in the future. Then it is a decision about whether managers use that tech directly or we utilize it on their behalf. We use our general ledger and database for our clients – it is the backbone of what we do – and it should be invisible. We try to be a transparent extension of the CFO team to limit their in-house needs and provide them with a platform.
How are digital tools impacting data collection and reporting?
Some very small managers still send encrypted emails, but virtually every GP uses a portal to communicate with limited partners. LPs expect managers to continually improve, and portals signal GPs are up to speed with the available tools. Yet despite the talk of making dynamic data available to clients and their investors, few LP portals include it. For those that do, most LPs only access a portion of that dynamic data, at best. Ultimately, many investors are focused on basic information that they can extract from static reports like a capital call notice or financial statements. Larger and more sophisticated LPs want more granular data, but typically will receive it directly from the manager in the format they require.
Although the focus is on tech-enabled reporting to LPs, the real impact of data digitization will be on GPs. Managers require more information at their fingertips to help back offices operate more efficiently and streamline internal front office operations. For our part, Sanne has established strategic partnerships with technology vendors that specialize in this area.
We are now several months into a global shift to remote working with little sign of an end in sight. How can firms continue to operate this way?
For Sanne, it is about transparency and communication across the organization. We always held weekly meetings with senior managers, monthly calls with staff and regular townhall meetings. With covid-19, the frequency of those interactions increased to ensure we maintain, if not enhance, that connection to our team. As a plus, video conferencing capabilities allowed people to see each other more than before the pandemic, particularly colleagues in other countries.
People, however, still desire human interaction and eventually will return to the office. Staff have proven that they can work from home effectively and I expect more will request to work from home in the future, but it will not be for everyone or all of the time. It is one thing to work remotely for three or six months, or even a year, but you need to recognize the impact. It can affect camaraderie and an organization’s cultural identity. When we do return to the office however, people will have to be comfortable with being back, and that should not be rushed.
How have your clients coped?
Sizeable firms with in-house back office operations simply were too large and sophisticated not to be ready. We heard some concerns early on from first-time managers and firms with a relatively young back office. Some were concerned about the practicalities of operating from home, the impact on back office operations, and whether they were sufficiently prepared to handle everything that they needed to address. We received questions about additional services we could provide should they need it and were ready to deliver. However, in the end, our clients got up to speed as needed and were operating efficiently, quicker than they expected.
Has your relationship with clients changed through the crisis?
It hasn’t changed; it’s been reinforced. The relationship has grown closer. As a firm, we were prepared to navigate this crisis and we already had the experience of transitioning to working remotely that we could share. We did not miss any deadlines, our service levels did not diminish, and our clients were pleased that we were well ahead of the curve.
Do you expect more GPs to adopt third-party service providers to complete back office functions because of the pandemic?
One area that clearly is on the rise is outsourced CFO services. As the survey shows, managers recognize that a CFO is integral to the firm. Smaller firms or those launching a fund for the first time may need temporary support as they develop their back office or to cover their management teams at the portfolio company level. Larger firms only might need this service for a short while when restructuring the team. Typically, then, firms may use this resource to bring in someone a level below the CFO to free the CFO up to focus on their core tasks, including interacting with the investment team and LPs. CFOs are busier than ever, and they need that infrastructure supporting them to be effective.