Outsourcing Fund Administration For Efficiency

• Published date: 15 October 2020
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, M&A/Private Equity, Fund Management/ REITs, Corporate and Company Law
• Law Firm: Ocorian
• Author: Mr Christophe Gaul

As private equity managers search for value, further emphasis is being placed on the operational and cost efficiencies outsourcing fund administration can provide, explains Christophe Gaul, Regional Head of Europe and Managing Director - Luxembourg in an interview with Paperjam magazine. *

* Watch Paperjam's interview with Christophe here.

Has there been a change in mindset towards outsourcing fund administration capabilities in recent years?

It has certainly changed. Managers were once reluctant to outsource core administrative functions but the trend to choose specialist third party providers continues to gain traction in the alternative investment space, with private equity firms evaluating the cost-benefit trade-off with increasing favour. The main reasons include: increased LP and investor pressure around transparency; the requirement for secure, institutional-grade technology; governance challenges; and the pace and complexity of regulatory change - think AIFMD, FATCA, CRS and BEPs and more.

Yet the decision to outsource essentially comes down to the manager - often the CFO or COO - recognising that keeping fund administration in-house is in many cases, an inefficient use of time and resources that can result in an expanded, cost-heavy back-office. This sentiment was evident in EY's 2020 Global Private Equity Survey, where 74% of PE CFOs wanted their teams to allocate more time to the core focus of portfolio analysis and less time to fund accounting.

Has the Covid-19 pandemic affected the growing trend of outsourcing?

Regardless of the industry, we have seen the pandemic exacerbate existing trends and catalyse change. The private equity space is no different. Many portfolio companies in vulnerable sectors such as hospitality, have seen valuations drop significantly over recent months. This has intensified pressure on managers to re-evaluate their operating models in search of cost efficiencies that can be passed back on to stakeholders. Therefore, for those managers having conversations about outsourcing fund administration, the pandemic may have expedited that process. Outsourcing is a natural step to make when looking to streamline operations as it removes the costs of recruiting, training and maintaining permanent administrative specialists and adopting the advanced technological systems required.

What do private equity managers often look for in a third-party fund administrator?

Clients now expect more value, a higher quality of work, and a...