This article is sponsored by Sanne Group
Like many firms, Sanne has been operating fully remotely since March, relying on robust technology systems, regular townhalls and online meetings to keep services operating like business as usual. The pandemic also had led fund managers to rethink their approach to outsourcing, managing director, North America, Fred Steinberg explains.
Globally, the private equity industry has had to shift to remote working in response to covid-19. How prepared were you as a business to do that?
Given how we support our clients, we already had a robust remote working capability. People already connect wherever they are and work at all hours to respond to client needs. However, since March, everyone has been working from home full-time.
In New York, our clients are predominantly US-focused, but we also have other clients that are international.
It was important, then and now, that our teams in all regions could work seamlessly with the technology needed for operating from home. Our IT department offers global coverage, which was critical, and they got everyone up to speed at the same time and ensured that there were no latency issues.
The fact that we stress-tested our remote working capability locally last year facilitated a smooth transition to being fully remote. In operational due diligence there always is a question about how robust is your business continuity plan and whether it works. We have proven ours does because we are doing it as we speak.
As a firm, you operate across 20 different jurisdictions at various stages of lockdown. What challenges does that present?
Internally, we hold regular covid-19 online updates to talk through latest developments within each of the countries that Sanne operates. We co-ordinate as a firm, but it is up to each country head to address their unique local situation.
In addition to technology, which I think we have managed well, our other big challenge is sustaining the business culture and identity of the firm when people work in separate locations. How do you ensure your staff feels engaged? I host bi-weekly virtual townhalls – one with staff in New York and another jointly with our satellite office in Belgrade. Senior management stay in touch with the entire firm through company-wide emails and videos. Every meeting we can do on Microsoft Teams with video on, we do. I see my overseas colleagues face-to-face now more than ever. That is very helpful as we used to travel to see each other and that won’t be happening for the rest of 2020.
We also surveyed our staff to ask them whether they felt we are proceeding in the right direction, do they feel supported, and have we done enough for them? Feedback has been very positive. To be honest, people’s expectations probably were tempered going into lockdown as they thought the transition would take more time. We didn’t skip a beat.
A third area upon which we focused was our policies and controls to see what needed to be amended given we’re 100 percent working from home. We’ve had to adapt how we execute some processes, for example accessing online bank statements to complete reconciliations. That means ensuring that everyone, including our auditors, understands why we’ve made the change. That’s important for our SOC 1 review that also will be done virtually this cycle.
What have your clients needed from you?
It’s business as usual. Our clients have needed us to help with co-ordinating capital calls and drawdowns on credit facilities, collecting money for expenses and issuing quarterly financial statements. Clients don’t want to go to their investors and say financial statements are late because everyone is working remotely. That’s simply unacceptable.
With secondaries, it’s about getting the right access online to data and people, and effectively managing virtual meetings to ensure all have everything they need. Our clients have said that it’s taken a while to get everyone up to speed on both sides of their transactions, but now that they have, it’s full speed ahead.
Did clients have the tech?
Most of our clients already used remote working capabilities pre-pandemic. They also are using MS Teams and Zoom effectively. Online data sites already were prevalent and a lot of due diligence on managers and companies already is undertaken online.
For our clients, it leads back to functioning as asset managers and addressing the demands of a range of tasks from portfolio company operations, the implications of the pandemic for different businesses, and acquisitions and divestments, while doing it all remotely.
The big question our clients face is whether it is the right time to get something done. 2019 was a record year for deal activity and 2020 was on track to be the same. Covid-19 derailed that momentum. Vendors don’t want to sell during a period of depressed valuations that they believe is temporary. Three to six months from now, they may think differently. Also, buyers can wait, although that impacts the timing of a GP’s next fundraise if capital is deployed more slowly.
Have secondaries investors also taken a pause?
They have the advantage of sitting on both sides of the due diligence equation. They are conducting due diligence as they experience it being done on them, so they know what prospects are asking. This gives them better insight into how the market is performing. They also have the dry powder to make acquisitions thanks to the record level of secondaries fundraising in the first half of this year.
It may feel like a long time, but it’s still early days. If the shutdown continues, they also will benefit as some LPs and GPs start to face liquidity issues. This crisis will limit the amount of high-net-worth money channelled into private equity this year. That segment of the market will find it more challenging to deal with liquidity issues compared to pension or sovereign wealth funds. For the secondaries investors that focus on taking stakes in GPs, I think they’ll see an increase in those opportunities.
Has covid-19 led to a reassessment of outsourcing needs?
In the past, European investors have been quicker than their US counterparts to embrace third-party fund administration. This crisis has highlighted the issue of bandwidth for internal CFO teams and could prompt US asset managers to reassess its attitude toward outsourcing, particularly if the pandemic continues into next year. We’ve already started to receive questions from clients about additional areas where we can assist.
Using a platform like ours disperses some of the responsibility and gives managers the opportunity to shift focus from administrative functions like accounting and tax toward their core business activities of investing, portfolio management and fundraising.
From a secondaries perspective, there is more opportunity to outsource certain functions given the amount of work done for portfolio monitoring. There are more assets to manage, more complexity and more detail. That’s even more so the case for secondaries firms moving from one fund to their next.
That’s a potential silver lining. Have you experienced any others during the pandemic?
We’ve used this time aggressively to fill open roles by hiring from struggling firms. Hires include people we met before the lockdown began and candidates who have come onboard never having seen the office. While it’s worked well, I look forward to going to back to meeting candidates in person. I don’t see us becoming a virtual company indefinitely, and our clients don’t think that way either. We still thrive on that personal connection that benefits both our clients and ourselves.