This story was sponsored by Apex Group
Today’s GPs know that their systems and software are crucial to staying competitive, and are willing to invest the time and money to access the best tools. That means the industry’s fintech is booming; with so many vendors, apps and consultants it can be mystifying to figure out the best mix to meet the firm’s needs, not just today, but tomorrow.
According to Srikumar TE of Apex Group, there are certain specialists that are well-poised to help clients choose, implement or maximise their systems and software. But this requires a close collaboration between firm, fund administrator and tech provider to best manage these solutions. Like so many challenges with technology, it is not about the tool, so much as how it is used.
How should private equity managers look at technology for their firms?
Today’s tech architecture is increasingly defined by external factors. Reporting obligations to investors and other outside stakeholders heavily impact the way in which technology is used and the rise of Big Data only adds to the need to capture and analyse a granular level of data, regardless of the strategy or theme of GP. The swathes of data gathered then needs to be consolidated on a firm-wide basis to satisfy reporting requirements to LPs and regulatory bodies and deliver valuable insights into the factors triggering performance.
Regulations governing the compliance obligations of asset managers particularly around data collection, storage, security, access and usage are developing quickly. GDPR and other data protection regulations have heavily impacted both the flow and organisation of data with respect to processes and controls. The supporting technologies utilised to facilitate GPs are no longer simply shaped by traditional factors such as internal requirements, client service and market competition, but are now influenced by increasingly demanding regulatory requirements as well.
Bringing all of that together, asset managers are faced with a long list of often competing priorities and so an independent administrator helping manage some of those obligations and effectively managing the technology on the manager’s behalf can be tremendously useful.
What value do fund administrators bring to the task of sorting out the various tech solutions? What makes them useful as a partner?
The role of the fund administrator has evolved. They are now intrinsically linked with technology through the necessity of employing various specialised tech platforms to deliver services. As the asset management space continues to evolve and diversify to remain competitive, it means that those fund administrators that have the capability to deliver solutions across a wider range of clients and industries are the ones that add real value. We have seen collaboration between fund administrators and third-party tech vendors intensify as a result, so the role of a fund administrator goes beyond traditional reporting and regulatory functions, to a kind of tech-centric discipline.
This is where the fund administrator really enhances its value as a service provider. It’s not a case of tech replacing the role of the fund administrator, it’s a case of fund administrators exploiting the capabilities of the tech to maximise the benefits for their clients. The depth and breadth of experience allows administrators to better understand the unique dynamic of a given system or app, the pain points and the elements that might need more time and care in the implementation and maintenance.
Administrators are constantly evaluating tech providers and solutions against market standards and best practices, they have economies of scale and are able to discover the most compatible tech platforms for each type of manager or investment strategy. Ultimately they can effectively help GPs balance their information wish-list with the economics involved in implementation and maintenance of their tech architecture.
The other key benefit of the fund administrator sitting between tech and their client is the ability to identify trends as they develop within various corners of the industry. Naturally, due to the fact administrators often work with so many different vendors and GPs, they can help build better interfaces that integrate with a manager’s existing system, which makes the upkeep more efficient as well.
Given that expertise, how would you describe the competitive landscape for vendors and independent consultants looking to serve the private equity industry?
The landscape has evolved rapidly in recent years, not just in terms of the number of new applications, but in how quickly vendors adapt to the market. The lag time between when a manager discovers a particular need and when the tech solution is deployed to meet the demand has shortened tremendously. This is due to a combination of influencing elements. What we see as one of the key drivers is the fact that these solutions are modular, so they do not require the extensive architecture that perhaps first-generation tech did, which means that evolution is occurring more frequently than before. These plug-and-play options are agile so that they can be all the more responsive to the changing needs of a manager.
Today, in situations where large amounts of data need to be migrated, for example if a firm is switching to a new platform or undergoing a major tech upgrade, there are independent consultants available to assist such projects.
These independent data consultants would not be affiliated with a given application. Instead, they will be pure data managers that specialise in the root applications of technology and can nimbly support data migration between platforms or between clouds and applications. Many of those consultants will be dedicated to the unique needs of private equity, so they will have a shorthand in speaking with managers, to help them over whatever hurdle they face. Naturally the space has become much more competitive, with more service providers, some of which have branched out from the large tech houses that were prevalent few years ago. These new entrants tend to have a sharper geographic or sector focus.
The administrator can play a fulcrum role when such a data consultant is engaged. Administrators are already a data repository for their clients and can work closely with such consultants to ensure the processes and end objectives are appropriately calibrated – at all times ensuring continuity and accuracy of information. Administrators can add value as they have both a deep understanding of the particular needs of their client and a broad view of the many vendors that may fit the bill.
How important is it that fund administrators be tech agnostic, or is there value in an administrator offering a specialised tech offering of their own?
My sense is that the managers who have spun out from big houses may be looking for a single, specialised solution. They are setting up their own shops for the first time and are much more focused on investor relations, deal sourcing and building out their strategy. These managers require a solution that is as simple and as effective as possible. They do not have the luxury of time or resources for building out an elaborate tech architecture during the initial phases. We do have such a solution which is modular and can be cost-effective. It is designed to scale with a new asset manager’s preferences over time.
For more established managers who have a clear preference in their service and technological solution requirements, we have the depth and expertise not only in the skillset familiar with various investment strategies but also the expertise in servicing managers across a broad range of leading applications. This is exactly why we have evolved our business to become tech agnostic. It means we have the ability to support GPs with very specific preferences or those involved with multiple strategies within Apex without the need for them to go shopping for the best solution for each investment.
Would the role be closer to one of consultant to ensure the manager selects the right fit?
Rather than merely recommending a tech solution, we see our role as affording our clients a choice. Given the range of solutions and applications available, the manager’s in-house teams could have a preference for a given application. Perhaps the front office is used to a specific system, even if it is not the cutting edge. Our position in this instance is not to dictate change but to assess the best fit solution for both their current arrangement and future ambitions.
We would not advise them to drop a particular solution for a different platform they are less comfortable working with. For that reason, we have deliberately developed our technology service offering to ensure they have a choice. Our strategy is to find a solution that fits their current arrangement. That solution could be through using a new application that is particularly compatible with one already in use or it could be that a workaround is devised by our technical support team. We have found this approach allows for a seamless data interplay between the investment and operational teams. When a client has a strong preference for a given application, our role is to help facilitate that and make the most of what is already at hand.
It is in instances when the manager is technology agnostic that we play more of a role in drilling down into the technology choices available to them and finding the best fit – effectively helping them balance their information wish-list and an economically efficient solution. This positon drives our strategy to develop our offering into becoming a tech agnostic provider. We have invested in ensuring that our clients have the broadest range of technology platforms in the market available to them so as not to limit them to a single application or solution.
In private equity, we deliver an unrivalled choice to clients, delivering service across eFront, InvestTran, Capital Tracker, AltaReturn, Investment Café and others. Our value comes through the ability to deliver expertise across all of these platforms in order to assist our clients in leveraging the power of the technology most suited to them.
How can administrators help managers moving into new asset classes? If their administrator has no experience in that asset class, do they need to find a service provider that can service both?
If a manager’s ambition is to expand into more than one theme of investment strategy it is feasible that they could manage two specialist service providers, though not ideal. The manager must at this inflection point seriously consider selecting a service provider who not only partners with them during their evolution in the new strategy but is also a specialist in every investment strategy the manager may have on their road-map.
The ability to service all asset classes under one roof helps us to share expertise on new strategies and align the GP’s new initiative with their overall preferences in information consolidation and reporting. It means we are aware of how the strategy fits in with the firm-wide vision. We get to know the teams working on each strategy and understand their needs so that we can help devise a cohesive tech-supported service solution for the entire business.
“It’s not a case of tech replacing the role of the fund administrator, it’s a case of fund administrators exploiting the capabilities of the tech to maximise the benefits for their clients”
Given the role fund administrators can play in a firm’s technology, how should they look at that skillset when choosing their first, or next, service provider?
A lot of due diligence goes into the administrator selection process, but I would say the theme beyond the standard checklist is to aim for the best combination of tech and expertise. The skillsets required by administration teams today differ from what was required a decade ago. While applications and systems can handle a lot of data-related issues, there will always be a gap between what the tech can do and what a manager needs. It is not enough to simply provide the technology or the skillset in isolation, administrators have the responsibility to deliver skilled resources to get the most out of technology. It’s really important that managers vet the team with respect to their technical and technological expertise as well as the administrators’ technology offering before making a decision.
When picking an administrator, managers will often talk to peers using that service provider for an unbiased assessment. What should they ask that peer about the administrator’s tech capabilities?
It is important they dig into the actual systems and apps that are in place at that peer’s shop. Sometimes there will be hiccups or quirks to a given solution that have nothing to do with the administrator. That said, it is always good to ask how seamless and swift the implementation and maintenance of solutions has been and the level of understanding of each application the administrator has demonstrated.
It is rare that firms build truly in-house technology solutions for all their needs these days. Is there ever a time or a situation where it makes sense to create a solution from scratch?
There will always be a few managers who simply want that kind of control and are willing to spend the time and resources to develop something truly in-house. But the reality is that reporting obligations to LPs and to regulators are changing at such an accelerated rate that the manager has to develop a system that can evolve rapidly and that is not always as easy. Even if a manager gets a system implemented, it takes an enormous amount of resources to manage and maintain an in-house tech solution, especially one that keeps pace with service providers who specialise in this space.
Most managers want a solution they can define and control, but without being responsible for every byte of data and every line of code. The demands of the industry are evolving constantly and that requires specialised expertise from tech providers and fund administrators to stay on the cutting edge.