Fund administrators are getting bigger and more advanced. The average fund administrator grew its private equity and private debt book by 11 percent during 2018, according to an annual survey by technology provider eVestment.
What’s driving this growth? We recently published our annual deep dive into the world of fund admin and identified the trends reshaping the sector.
Technological revolution. Private equity fund administration has been slow to embrace the deluge of new technology on offer compared with adjacent industries. Until recently, it was not uncommon to find some relying on Excel spreadsheets and basic general ledger software packages. But as pricing models shifted from billable hours to fixed transaction fees post-financial crisis, a need to maintain margins has led to a drive for efficiency and administrators are now embroiled in a technology arms race.
Limited partners are becoming increasingly sophisticated. They are no longer just interested in IRRs; they require a broader range of data points and greater level of detail, as well as the ability to manipulate data according to parameters such as vintage year, geography or sector. “A significant change that we have seen over the past two years is administrators’ willingness to build data feeds straight into our systems,” says Michael Robertson of Aberdeen Standard Investments.
The M&A charabanc rolls on. High cash conversion, margins and growth rates have lured investors into the fund administration space for years. As some administrators, such as JTC, successfully make the leap to public markets, the appeal is only growing. Acquisition activity among administrators themselves has really heated up over the past 24 months. Recent deals of note include Vistra’s acquisition of Radius; IQ-EQ’s acquisition of Augentius and Apex’s acquisition of IPES. In addition to jostling for jurisdictional access, fund administrators are chasing scale to facilitate technology investment; to lower overheads, while maintaining margins, and, in some cases, to attract buyers.