Specialist providers serve changing market
Times are changing for the private equity industry. Once relatively unknown outside the financial world, in recent years it has become a staple of the mainstream media. However, the role of service providers has not become as familiar as that of the firms that have led the buyout boom, even as they have played a crucial role in the sector's development.
Ipes is one such business. Established 10 years ago in Guernsey as a six-person offshore fund administration firm, it has grown to employ more than 100 people in London and Guernsey, and administers more than EUR36bn in funds for some 60 client groups based primarily in Europe, but also in the Americas and Asia. Ipes's success has been based on its personalised and flexible approach to servicing its clients and its specialisation in private equity funds and their associated structures.
Traditionally all aspects of running a private equity house were handled under one roof, or fund administration was provided by large institutions in a highly functionalised manner that lacked flexibility, but over the past decade there has been a change in the way private equity services are provided. Smaller, more focused firms have brought more choice of service provision, and the benefits of buying in the expertise required, rather than building costly infrastructure, haves become more apparent.
While private equity firms themselves have become more institutionalised, the teams running them still tend to be relatively small. Unlike most providers, Ipes has the advantage of being large enough to manage a very diverse client base, with different types of businesses, funds and service requirements, yet still small enough to provide highly personalised service.
Another recent trend is the move away from using third-party administrators for purely offshore reasons. Many new firms are created through spin-outs from parent companies, or executives deciding to go it alone, driving demand for onshore outsourcing provision. This factor prompted Ipes to set up a London office in early 2006.
The decision to outsource is often taken at the same time as fundraising, a notoriously demanding period, so it is vital that the administrator is sufficiently experienced and qualified to provide the necessary support - especially if the fund is to be based offshore, as new promoters require assistance in areas such as the regulatory application process.
Having worked with firms including large buyout houses, start-ups, regional players and sector-specific fund managers, Ipes has the depth of knowledge and expertise to find solutions that may be less obvious to the manager. With some less experienced managers, Ipes takes a more consultative approach, especially important where firms are weighing up outsourcing all or part of their back office but are not under pressure to outsource for offshore or internal resources reasons.
The administrator, especially if based offshore, must be aware of regulatory and legal requirements in jurisdictions beyond their own. They will need to understand tax regimes such as K1 reporting Erisa and UBTI implications for US investors, and the benefits of using Luxembourg for holding companies, particularly for German and French transactions.
Some larger institutions that offer outsourced services and administration are not providing an 'offshore management service' for the fund's general partner. While differing tax regimes persist across Europe, the need will remain for different types of service provision. Fund managers will continue to have the choice of a big brand-name outsourcing offering or a niche service with the expertise to cover all legal, tax and regulatory requirements.
Connie Helyar is executive chairman of International Private Equity Services
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