Jill Calton (pictured) is a managing director of the Alternative Investment Services division at UMB Fund Services. Over the past 12 months, the firm, which currently administers just north of USD31bn in alternative investment assets, has seen increasing inflows into credit strategies and private equity funds; particularly the latter.
“We have several existing private equity clients that are entering new deals and launching new vehicles. We’ve also taken on a few fairly large private equity groups this year who have rotated out of other administrators. In addition, an increasing number of private equity managers who previously did fund administration internally are looking to outsource and utilise a third party administrator so they can focus on managing the portfolio – it’s an important trend in the US,” says Calton.
“These managers want to know that the people working on their funds are top-notch, and that the technology and systems we have in place surpass the capabilities they would have had in-house. Private equity managers are also concerned about the cost of outsourcing. They don’t want to commit to anything that could result in expenses being passed on to their investors because of a decision to outsource,” observes Calton.
Calton says technology is a key requirement for these managers – even more so than for hedge funds. Administrators need the ability to automate, provide a high level of customisation and give managers enhanced reporting tools.
“A lot of our private equity clients are adding funds to their portfolios and have an increasing need to eliminate manual processes, which can lead to human error. Through our automation and reporting capabilities, we are able to turn around information quickly and accurately.
“Private equity funds have complexities that hedge funds don’t have, such as unique waterfall calculations, investor transfers that can be difficult, and defaults. Sometimes investors default, and your systems have to be able to handle this without a lot of manual intervention. Given the complexities of these portfolios, having the right technology in place is vital to meeting managers’ expectations,” stresses Calton.
Moreover, administrators need increasing numbers of in-house experts who can react to portfolio discrepancies; maybe a valuation issue that needs to be crosschecked with the manager. Technology is important, but having the right team in place is even more so.
One area where all alternative managers are looking for additional support from their administrators is middle office services.
“We have a number of fund-of-PE-fund clients asking us to give them a look-through from the funds down to the company level in their portfolios. We’ve enhanced our systems whereby we maintain all the portfolio company data, different statistics and demographics, etc, and have developed a customised reporting solution to suit their needs. This means they can take all that information and use it when drafting their corporate letters to investors. Our clients increasingly want real-time access to this information, so we’re updating it on a daily basis,” explains Calton.
The benefit to offering such an online portal is that it allows investors to access data ‘on demand’ without having to rely on monthly or quarterly updates from the respective general partners.
“We find that what clients are really interested in is the raw data. Increasingly, clients of all types – from PE funds to hedge funds to fund-of-funds – are looking to have access to everything that we track for them,” concludes Calton.