Remote working is here to stay…
Even though the common Zoom joke these days is that we are all “living from work,” the newfound convenience and efficiency that has been unlocked for many workers means that remote working will likely continue on in some form long after offices reopen.
Half of private fund CFOs surveyed in Q3 2020 for the annual Private Funds CFO Insights Survey said they expected “more flexible working arrangements going forward,” while one in 10 were considering reducing office space.
Brian Matlock, national practice leader for asset management at BKD, expects “the world of accounting and consulting service to be forever changed.”
… but we can expect a limited return in Q4 2021
While the pandemic did unlock new potential for the private equity industry, Matlock says it also “placed a strain” on teambuilding efforts across divisions. “Nothing can replace the camaraderie built through direct team member interaction.”
That sentiment is echoed by Kristine Koren, a partner at Mayer Brown focusing on private fund formation. “If you’re not there with your colleagues, you lose that culture, that collaborative solidarity that you develop after years and years working on transactions together,” she says. That deficit is particularly problematic for those just starting their careers.
Jeff Gendel, business development principal at Gen II Fund Services, anticipates a limited return to an in-person environment possibly in Q4, “with something that resembles pre-pandemic interaction in 2022. Going forward, I expect face-to-face interaction – whether on Zoom or in person – to be even more vital in the sales process, and I am building out my team to meet that expectation.”
Technology can cut both ways…
Technology can serve as both “the catalyst to continue the growth of outsourcing” and a potential roadblock for some fund administrators, says Tim Toska, global head of private equity at service provider Alter Domus.
“In only a few years, clients have gone from communicating to their limited partners by physical mail to faxes, to email attachments, and now investor portals that also include dashboards with the ability to run ad hoc reports and returns,” he says.
The fast pace of digitization will continue, bringing additional challenges. Six months into the pandemic, more than half of CFO respondents said covid had encouraged them to invest more in technology, while nearly a quarter were considering additional outsourcing.
“The fast rush to work from home last March exposed some systemic operational risks within PE firms and sparked a re-evaluation of risk and opportunity for improvement across the PE enterprise,” says Gendel. Even without the pressures of a pandemic, “market forces are still pointing toward widespread endorsement of the outsourcing model,” he says.
“There’s a realization across the industry that a credible administrator brings an opportunity for improved operational performance and reporting ability, de-risking of the business model, and furthering scalability as the industry attracts more LP capital.”
… but the adoption of new platforms is changing the face of LP/GP relationships…
For managers, increased demands from LPs have been a challenge for years, and the volatility and uncertainty of the pandemic have fed into this trend. “We saw investors incredibly concerned about valuations,” says Anne Anquillare, CEO and president of fund administration firm PEF Services. “We worked with several clients and industry leaders to facilitate best practices in valuations and investor communications. We hope that investor communications remain central to efforts for our industry.”
The adoption of new platforms could help to make that hope a reality. “We’ve seen a marked interest in investor portal technology and workflows that provide GPs and LPs with access to data sourced from the official books and records of the fund,” Anquillare says.
“The heightened awareness and need for improved investor reporting and investor communications will extend beyond the pandemic.”
Toska says clients “are looking for full data transparency with a dashboard to track all activities. There has been an accelerated shift from paper documentation to true digital interactions.”
… and the world of accounting and consulting services will certainly change forever
As the shape of life after covid starts to come into focus, the interplay of returning normality and lasting change is a defining question.
For the fund services industry, pre-existing dynamics like outsourcing and the rise of technology seem to have been accelerated. And the biggest, most unexpected disruption to business as usual — the total shift to working remotely — is unlikely to recede in full.
Having been thoroughly tested by a global crisis, firms now face a transition back to in-person interaction in a world that may well have been permanently altered.
“In many ways, the world is larger now as companies realize the benefits of a virtual/paperless accounting system, which allows these firms to do work seamlessly all over the world,” says BKD’s Matlock.