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An era of transformation: opportunities and challenges in private capital

16 November 2022

Mark Rowe

Non-Executive Director and Consultant, formerly Partners Group 

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Mark Rowe

Non-Executive Director and Consultant, formerly Partners Group 

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New pressures and industry shifts are changing the landscape of back-office functions.

The research behind our next-generation operating model for private capital found that revamping services and operational functions is a top strategic priority.

For years, firms have concentrated on effective processes and controls, leading to inefficiencies, complex manual workarounds, and data management issues. Fee pressures, rising costs and a more flexible workforce are forcing investment managers to refocus and streamline.

Investor and investment data-driven tax initiatives and regulations, such as sustainable investing, increase the demand for collaboration and data in an efficient and scalable manner.

Accelerated deal flow timelines, coupled with the need to monitor your tax, legal and regulatory obligations across funds, investors, and investments, result in costly fire-drill exercises.

The challenges of scale for private capital

Private capital is thriving. That’s been true for a number of decades, and it continues today, despite macroeconomic uncertainty.

Investing, fund-raising and servicing clients are the three-legged stool of private markets, with each leg having a symbiotic relationship with the others.

The importance of a good operations framework cannot be underestimated. It can help managers to react to client demands, mitigate and manage risks, and create value.

As fund managers handle ever-increasing assets under management and invest in larger deals, they are also diversifying across asset classes such as private debt, real estate and infrastructure, and across regions.

And as private capital takes on greater economic significance, with retail investors now getting broader access to private markets through their pension contributions, there will only be more regulatory scrutiny.

Add in rising competition and investors’ desire for lower fees and you have something of a perfect storm. Funds want to scale in an atmosphere of increased complexity, growing cost pressures and greater demand.

Operations are the key to efficiency in private capital

No wonder managers are taking a long, hard look at their services and operational set-up and wondering how efficient they really are. How can they make operations more proficient and scalable without adding cost?

There’s no one-size-fits-all answer to these questions, but there is great merit in asking them.

Operations have traditionally been a secondary focus in private capital, and whether the fund has USD200m or USD20bn of assets under management, operational inefficiencies have probably been overlooked and repeated.

To put it another way, there’s probably plenty of low-hanging fruit. Typically, managers who re-evaluate their fund operations find multiple areas for improvement.

Where? They might be in standardising and automating ad hoc obligations. They might be in smarter, more integrated data management that makes information easier to find and use.

They might be in moulding the administration of global entities to specific local circumstances, rather than simply lifting and shifting the same central model to diverse jurisdictions.

All of this creates efficiency and frees up the time of your best operations talent to take a more proactive and entrepreneurial role in your business. It cuts costs while adding value.

Towards a new fund operating model

This is precisely the premise of the Halo Framework, our next-generation fund operations framework. We know from experience that efficiencies can be found across the services and operational functions.

It provides the foundations for an efficient, scalable fund operations model based on six key areas:

  • People
  • Processes
  • Technology
  • Partnerships
  • Governance
  • Strategy

It’s a framework, not a straitjacket – it provides the outline of an efficient operating model but allows for layers of customisation on top.

It’s for investment managers to use as they will, as part of their evaluation and re-engineering process.

Some may wish to implement an integrated back-office model for the first time and wonder what that might look like. Others may have encountered roadblocks in a specific area and need help getting over that hurdle.

Ideally, funds of all sizes will eventually move to a holistic operations model, and from a reactive to a proactive perspective.

Our Halo Framework is by no means an all-or-nothing solution. Managers will travel at their own pace towards operational efficiency and start from different points. But the one universal takeaway is that, in the new era of private capital, it’s a journey they must take.

The framework identifies and describes a best-in-class, next-generation fund operating framework for private capital. You can download it here.

Why Intertrust Group?

  • As a strategic partner, we offer a full-spectrum service tailored to meet all services and operational needs throughout the lifecycle of a private capital fund. This is against a background of ever-increasing reporting demands.
  • Intertrust Group has 70 years’ experience providing world-class trust and corporate services to clients around the world. Intertrust Group has been acquired by CSC, the world’s leading provider of business, legal, tax and digital brand services, worldwide.
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