Private capital markets’ popularity has brought a new set of challenges on fund managers, who are grappling with increased complexities. Mario Cusinato, Commercial Director Funds, Alberto Osacar, Business Development Director, and Kelly Jorritsma, Commercial Director China Desk Europe, explain how outsourcing fund administration can help
Private markets continue to attract significant amounts of capital, with funds becoming increasingly complex. Combined with growing regulatory requirements and investor demands, this means fund managers have plenty on their plates.
Around USD 5tn is invested in alternative fixed-income-oriented funds worldwide (excluding mutual funds and business development companies), with about 2,500 fund managers overseeing almost 15,000 credit and fixed-income funds.
As the sector continued to grow in the aftermath of the 2008 financial crisis, fund managers broadened their strategies to include asset classes such as private credit, speciality finance, asset-based finance, structured credit, diversified credit, and non-distressed and distressed assets.
Of those, it’s private credit and speciality finance that have seen the greatest growth over the past five years: 61% and 39% respectively.
While diversification has brought higher returns, it has also made fund administration more complex. This means fund managers now need specialist expertise to tackle increased data demands, technology integration pressures and back-office challenges.
Making even the simplest decision – for example, where to base a fund – can be difficult without the right expertise.
There are more than 100 jurisdictions globally and picking the right base can depend on several factors. But wherever a fund is registered, fund managers will face significant reporting requirements.
Regulatory changes affecting fund administration
One of the most challenging aspects of fund administration can be keeping up with constant regulatory change and new requirements across different jurisdictions.
Spain’s National Securities Market Commission (CNMV) often introduces new regulations at short notice. For example, certain foreign investments in strategic sectors have required prior authorisation since the Covid crisis in 2020.
According to fund managers surveyed in our report, The future private capital CFO, the UK private capital market faces the twin challenges of increasing regulatory constraints and a surge in investor demands for more detailed fund data.
UK fund managers who distribute their funds across Europe will also have to adapt to changes in European legislation. They are affected by the EU Sustainable Finance Disclosure Regulation (SFDR), which aims to make the sustainability profile of funds easier to benchmark. Its introduction in 2021, however, has for many funds created a large burden of data requirements.
In the US, the Securities and Exchange Commission (SEC) is also focusing on environmental, social and governance (ESG) issues, suggesting that current climate change and ESG disclosures may be tightened in the future.
Keeping abreast of all these developments – and their impact on fund administration or investors in different jurisdictions – can be challenging.
New fund administration strategies for a changing market
More new funds are launched in the private credit space than in any other fund strategy. Private credit funds have increased assets under management by USD 475bn over the past five years, according to our latest report, in which we explored opportunities and challenges in this rapidly growing asset class.
The majority of these funds invest in niche asset classes that require specialised expertise that may not be available in house.
Meanwhile, many strategies have relatively short lives, which can add to the difficulty and pressure on management.
Our report has highlighted how the speed with which firms launch follow-on funds has accelerated over the past few years. In the past, this would happen in a three-year timeframe. Today, a follow-on might occur in just 15 to 18 months as managers seize opportunities and react to investor demand.
Around 80% of more than 2,800 private credit funds launched over the past five years were from existing managers.
This means more private credit assets but fewer managers. Experienced managers will find it easier to expand, but the barriers to entry for new managers remain high.
In addition, the Great Resignation has created a scarcity of back-office talent – especially skilled back-office accountancy, tax and operations staff, who have become difficult to retain and more expensive to hire.
Outsourcing fund administration can relieve pressure on fund managers
From setting up funds to preparing period reports, outsourcing fund administration can help relieve the pressure on fund managers as they tackle an increasingly complex private capital market.
Smaller funds can benefit from partnering with fund administrators who have regular contact with local regulators and work with a network of highly specialised professionals.
Managers can breathe more easily knowing that all accounting requirements – including independent net asset value calculations – are taken care of.
And throughout the fund’s life, investor onboarding, subscriptions and redemptions can be managed efficiently while saving on technology, entity setup and headcount costs.
With the right fund administrator, fund managers can focus on the business of investing and not worry about all the back-office functions, which can spell trouble if not done correctly.
How Intertrust Group can help with fund administration
- Intertrust Group has a footprint in more than 110 jurisdictions, providing global coverage for clients.
- Intertrust Group is a publicly listed company with more than 70 years’ experience providing world-class trust and corporate services to clients around the world.
- We can support clients by onboarding multiple strategies, from direct real estate to fund of funds, providing a tailored service based on each client’s needs.
- We keep up with regulatory changes and ensure compliance for all our clients.
- We can provide customised reporting for different investors and ensure data is standardised.
- Come and meet us at SuperReturn in Berlin on 14-17 June to find out how we can help you accelerate the possible.
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