Head of Fund Services, Intertrust Luxembourg
The growing complexity of alternative funds in Europe signals the end of administration by spreadsheet. A more sophisticated approach to private equity technology is needed
Private capital asset managers overseeing multiple funds are well aware that their roles are becoming more complex. Demands for transparency from investors and regulators continue to grow, stretching resources.
At the same time, complex blended portfolios that promise better yields create their own data and reporting challenges.
For fund managers in Europe, the situation can be challenging. Yet the adoption of private equity technology to help meet these challenges is in its infancy.
The reality is that the sector’s low-tech approach is no longer suitable for managing diverse and complex portfolios.
The evolution of technology in private equity
Private capital’s attitude to technology – a product of the sector’s development – might be characterised as “make do with what you’ve got”.
In Europe, private equity, private debt, infrastructure and other alternative assets took off after the financial crash of 2008, as investors turned away from public markets.
And when private capital took off, it flew. The combined value of private equity transactions in Europe has almost tripled in the past decade. In 2021, the region set new records in terms of deal count and value with approximately 7,197 deals closed, worth EUR 754.5 billion.
This rapid, sustained expansion gave managers little time to think about back office functions.
Instead, as they moved into private equity from hedge funds and other liquid strategies, they brought familiar technology and processes with them.
They adapted what they had and made do. It just about worked. But now we’re reaching the point when it won’t any more.
Funds cannot ignore private equity technology any longer
Private capital is fundamentally different from the world of hedge funds and public markets. Every alternative fund is unique. Every blend of assets creates new challenges for managers.
Those challenges will grow. Demands for transparency are getting louder in a sector used to keeping itself to itself. Investors and regulators will increasingly expect to see more data from fund managers.
At the same time, asset managers are chasing higher yields into areas that may stretch their specialist knowledge.
Our Future Fund CFO 2022 report shows a real enthusiasm for diversification, with a consolidation of private equity alongside moves into private debt, real estate, infrastructure and more.
All of these factors make it even more pressing to implement faster and more accurate ways of working.
Consolidation and standardisation of private equity technology
If spreadsheets alone can’t meet these new needs, what technology should private capital look at?
Fundamentally, the sector needs software that enables information to be managed efficiently.
Data from diverse sources has to be consolidated, standardised and presented in a way that is useful, whether it’s performance reporting for investors, fee data for limited partners (LPs), or Environmental, Social and Governance (ESG) information for regulators.
Systems need to integrate, so everyone has access to the same information at the same time.
Various private equity technology solutions on the market can help fund managers meet these needs. But for them to be truly effective, the sector must do more than simply make the investment. It must change its mindset.
Private equity technology buy-in across the board
New technologies need buy-in across the board. They need every player in the chain of influence to understand a system’s potential and be motivated to change.
To take one example, there are new and innovative ways to process capital events based on electronic instructions from clients.
But for that time-saving automation to become standard practice, clients have to move away from sending instructions by email. That will take a concerted push. Either everyone buys into new ways of working, or nobody does.
Positive signs for private equity technology
There are positive signs that private capital is shifting to a more collaborative mindset, taking the first steps towards standardisation and integration.
Covid-19 showed that advances need not take years. New technology can be implemented in weeks when necessary.
Remote collaboration on documents, virtual meetings and the standardisation of digital signatures have taken big strides over the past two years. Digitised onboarding of investors is the next logical step.
None of this will seem revolutionary to more cutting edge industries, but it’s evidence of a new openness on the part of private capital to exploring technology’s benefits.
Private equity technology is still work in progress
Still, modernising the sector remains a work in progress that is facing significant challenges.
A skills shortage – exacerbated by the Great Resignation – and the cost of implementing and maintaining new systems could slow progress. Outsourcing is one potential solution.
But whether it’s an in-house service or delivered by a third party, the promise of technology for private capital is simply too great to ignore.
Asset managers recognise that a focus on back office functions – specifically, collecting and processing data – is a distraction from focusing on investors’ goals .
That change in mindset means private capital will gradually have to shake off its low-tech tendencies.
Why Intertrust Group?
- As a strategic partner, our proprietary innovative technologies combine with global knowledge and experience to deliver added-value services for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
- Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration and corporate actions, investor relations and portfolio management.
- Intertrust Group is a publicly listed company with 70 years’ experience in providing world-class trust and corporate services to clients around the world.
Insights | Private Capital & Hedge Fund Services
How to mend the valuation disconnect between GPs and LPs
31 August 2023
Insights | Corporate Client Services
OECD Pillar 2: Multinationals consider next steps under new minimum tax measures in Switzerland
31 August 2023