INSIGHTS

Private Equity Funds: Outsourcing to Growth

Recent developments have driven home the need to have operational processes that are both adaptable and sustainable. Consequently, while there are advantages to keeping certain functions in house, this could also mean you don’t have sufficient backup, especially when it is needed most. If critical staff are out of the office or dealing with other pressing matters, there is a risk that some things won’t get done right—or at all.

This can be especially true for private equity groups that rely on an individual or small team to manage fund accounting and investor reporting obligations. Handling the back-office fund administration in this way might seem workable at the outset, but it can ultimately become a distraction that affects other critical areas such as managing portfolio companies and investor relationships–both of which generate a much greater return on investment.

Moreover, as firms raise successor funds and the size and complexity of their portfolios increases, most find it difficult to scale their back offices appropriately while simultaneously managing growth in the portfolio and investor base.

Increased focus on resiliency and scalability

Even before COVID-19 struck, PE groups had become increasingly focused on making their back-office operations more resilient. Along with the rest of the financial industry, they faced growing pressure from regulators, investors, and other stakeholders to ensure operations could withstand disruptions to the normal routine. For managers that work with institutional investors, a well-thought-out business continuity strategy is a given.

But having a robust accounting and financial reporting framework in place is not the only reason why firms have moved toward outsourcing these activities to fund administrators. They also want to be able to scale up operations as their businesses grow and gain access to expertise they may be lacking internally. Equally important, they are keen to satisfy investors’ rising expectations regarding fund infrastructure, transparency, and security.

Naturally, this begs the question of who to partner with. For some managers, concerns about making the “wrong” choice have led them to seek out the biggest administrators. As in the old days when IBM was the iconic technology leader, many decided that they could not be faulted for going with the firm many considered the “safe” option.

Choosing service over size

But in reality, choosing size over service is a decision that frequently falls short in almost any service industry, and fund administration is no exception. The top end of the market is saturated with massive organizations that rely heavily on automation and that impose a self-service model on the vast majority of clients. It’s not that they aren’t capable of providing great service; rather, they only have the bandwidth necessary to offer white-glove treatment to firms overseeing multi-billion-dollar portfolios.

Indeed, we hear the same story all too often from PE managers who took the “safe” route or were blown away by a technology demo only to find that there is not much substance behind the marketing presentation or that they were assigned a team of inexperienced staff to manage their relationship.

This is one reason why many first-time funds and PE groups managing less than $1 billion have gone in a different direction. Our clients choose E78 Partners, because of our emphasis on service, our deep expertise in private equity, and our ability to scale and create tailored solutions without diluting the elements that are core to our value proposition.

At E78 Partners, we recognize that clients have stringent deadlines and need on-demand answers to critical questions. Consequently, we staff each engagement with an experienced client service director who is directly involved in day-to-day accounting. Unlike at firms that employ the assembly-line or offshoring approaches we see all too often–where your relationship manager is simply a figurehead with no real knowledge of your business–you have direct access to the professionals who actually do the work.

In summary, with a diverse array of PE clients managing anywhere from $25 million to $5 billion, we understand how to deliver value—now and as you grow.

To learn more about how we can help you with your fund administration needs, please contact Chris Rakers at crakers@e78partners.com.

Want to speak to us about your specific needs? Contact info@e78advisors.com