At SS&C Advent, an independent unit of SS&C Technologies who collectively support more than 10,000 customers worldwide, there has been, according to Jesper Steiness (pictured), Director of Global Accounts, a clear growth of interest among fund managers and service providers to improve automation with respect to alternative portfolio accounting and reporting.
This is happening at a time when alternative fund managers are converging in terms of the products they offer, with hybrid fund structures becoming a more popular feature of the landscape. But given the complexity of the assets, and the movement of cash flows within these structures, both managers and administrators realise that technology is needed to improve transparency and reduce reliance on manual workflows.
"There has been a shift in the last couple of years. We see existing clients and prospects showing more of a willingness to improve efficiency. The banks, for example, appreciate they need to progress by moving away from spreadsheets and using new technology. There is a lot more capital being pushed into that area.
"Most of the large institutions we speak to, not just in Luxembourg but in many different jurisdictions, say they have much more of a focus on Fintech than they did a year or two ago," says Steiness.
Roger Woolman is Principal Solutions Consultant, Asset Management & Alternatives at SS&C Advent. He observes that "practically every service provider" that SS&C Advent speaks to in Luxembourg is talking about private equity and real estate assets. Whereas years ago, many had proper systems in place for traditional fund investments and then hedge funds, they are having to adapt in response to the fact that alternatives now means supporting PERE, infrastructure, direct lending, loan funds and so on.
"The concept of `alternative assets' has changed," says Woolman. "We used to talk about alternatives being things such as derivatives but we now see a lot of service providers setting up separate or break away departments i.e. administration units, to specialise in PERE assets.
"This reflects the change in investment techniques being applied as investors and fund managers look for new investment opportunities. As such, the back-office systems and administration systems are having to catch up. It is a trend that we see clearly in Luxembourg and in other jurisdictions such as Dublin. PERE appears to be at the forefront of people's minds."
Part of the reason for this is that hedge fund performance has been fairly poor the last few years. Also, because of quantitative easing, and the lack of volatility and stock dispersion, hedge funders have moved further out on the liquidity spectrum to look for new sources of returns; hence the rise in hybrid structures. At the same time, private equity managers have developed liquid alternatives as well as having to respond to demands for increased transparency from their LPs.
"Fortunately, we developed functionality for private equity clients within the Geneva product a few years back. Now that the wider industry is increasing its activity in the PERE space we are in a good position to service these types of funds," says Woolman. "Private equity and real estate still rely on manual processes, people sending documents, etc, rather than use straight-through processing transactions. People are now looking to automate as much as they can to better support these investments."
The nature of these deals does not come from an automated world. Steiness says that when SS&C Advent has worked with pure private equity clients over the years, "we've had to build functionality around manual processes. A manual process in private equity might be a PDF with a net figure that is the combination of a call and a distribution and so on. Private equity takes manual processes to the extreme; it's a very bespoke culture."
Trying to administer these types of activities is no easy task. Fund managers might have a range of different fund vehicles and for the fund administrators this means they have to deal with a wide range of manual processes. To best support their clients, administrators need robust systems that can provide a greater level of automation.
Steiness confirms that over the past couple of years SS&C Advent has built out its core functionality to support hybrid products. "There are lots of different definitions of hybrid funds but at the end of the day, asset managers might have a long-only fund, a private equity fund, a real estate fund, and a hybrid fund with both hedge fund (more liquid) and private equity investments held within the same structure. We can support any type of fund structure; direct funds investing in PERE, hedge, etc, as well as fund-of-funds."
The mission statement at SS&C Advent Geneva has always been to support any asset class, in any structure, in any region. That, says Woolman, is the ethos "on which our software has been architectured. When Jesper talks about hybrid structures, which perhaps have private equity flows into a hedge fund-like investment vehicle, the reason we can accommodate such vehicles is because of the broad architecture we have built within Geneva.
"It's not just fund managers and fund administrators using Geneva it is private equity shops, family offices, prime brokers and so on. It is used by many different types of clients."
Woolman is confident that SS&C Advent is well positioned to support clients on both sides of the Street as the convergence trend within alternatives evolves. The system is, he says, just as capable at handling bank debt as any other illiquid asset class.
"With respect to hybrid structures we are in a unique position because of the depth and breadth of coverage that we have in the system. The depth comes from being able to create complex structures and being able to look through those structures properly, providing comprehensive reporting.
"We can trace the investment activity (and cash flow), all the way through a complex structure and then report it transparently to the investor; whether that be used for reporting, opting in and out of investments, or for some sort of blended tax position for an investor," explains Woolman.
A number of years ago, SS&C Advent decided to merge World Investor, a private equity/shareholder services system, with Geneva, their portfolio management and accounting system. The result was Geneva World Investor.
At its heart lies flexibility; something that SS&C Advent paid close attention to when speaking with private equity managers and administrators, as well as managers running hybrid fund structures.
To accommodate a variety of fund structures, the platform incorporates an n-tier fund structure function. This allows for the unlimited creation of entities within a structure including multiple masters, multiple feeders, blockers, AIVs, SPVs allowing managers to be as flexible as possible as they look for new investment opportunities.
"Geneva World Investor allows us to fully track all complex activities. When there are private equity flows going in to a fund structure we can follow those activities all the way to their final destination," adds Woolman.
As consolidation continues, particularly among fund administrators, there will be a growing need to integrate single system technologies.
"The result of M&A activity is that clients might have different systems, supporting hedge funds on one system, long-only funds in another, private equity in a third system and so on. They want us to help them consolidate all that data in Geneva. With the R&D we have conducted on Geneva and Geneva World Investor, we are well positioned to help with this consolidation and allow clients to remove systems they no longer need," concludes Steiness