In another area, we noticed as the lockdowns started and then continued on, our clients relied on us to assist with communication efforts and the coordination of connecting firms to schedule closing activities.
Audette: With many fund launches initially delayed and other fund managers holding off on making decisions such as outsourcing fund administration, current year forecasts for staffing plans were suddenly thrown into question for many administrators. Those administrators with well-defined forecasting processes were able to quickly and effectively re-forecast staffing requirements and adjust plans as needed, to avoid reactionary layoffs.
Fund administrators, such as Ultimus LeverPoint, stayed “ahead of the game” by maintaining built-in staffing capacity, employee recruiting initiatives, and strong marketing and business development teams. We were able to take on new business without sacrificing quality or scrambling to hire new staff. As the circumstances unfolded, we were well prepared to face the challenges and opportunities presented in subsequent months as fund launch activity resumed in earnest.
Hortz: Has the fact that administrators had to pivot so quickly with expanded services been changing the traditional functional nature of fund administration and private fund managers?
Audette: While we expected an ongoing evolutionary relationship between fund managers and administrators, yet again earned its moniker as the “Great Accelerator” of change. Luckily, we had been preparing for this heightened working relationship with expanded strategic service offerings and technology support. We saw the need to better integrate technology and a higher level of business partnering into our client’s processes and find solutions for gaps they may have in their operations and business practices.
Hortz: How do these expanded services and higher levels of administrative partnership impact the private funds marketplace going forward?
McCoy: There was an interesting opportunity for General Partners (GPs) through this all. There has been an increasing market demand for greater transparency, and it requires a commitment and capability on the part of GPs to provide greater informational services to LPs to meet their needs. This new openness and sharing can create great opportunities for improved relationships between GPs and LPs.
Another point of interest and of special benefit was that some GPs started to understand the value of their own data. The new agility on data management from administrators required by the pandemic provides GPs the ability to see the positives that analytical LPs find in their data.
Hortz: What trends are you seeing developing in the private funds market that advisors should be aware of?
Audette: Some trends we see currently include a renewed interest in private credit strategies within more traditional PE buyout firms; a growing need for middle-office services to service these credit strategies; real estate funds in distressed markets are reinventing themselves looking at structures such as 3c5c; continuing hybrid vehicle creation of open ended fund structures with private equity style investments; and a growing need for fund managers to outsource, especially around data collection, data management, and performance reporting.
Hortz: Any additional thoughts you can offer from your experience?
McCoy: Looking back at these times, I think we will recognize that certain niche strategies came about in the wake of the pandemic environment and that this was the point when technology-enhanced services, fundraising activity, increased transparency, and GP/LP relationships changed the dynamics in the industry. We are already seeing many fund managers adjusting rapidly to this new operating reality.
Above all, due to the many issues presented by the Covid epidemic, many self-administered fund managers are realizing the strategic benefits of both outsourcing and co-sourcing fund administration. There is an imperative to seriously upgrade technology and for partnering with their administrators to upgrade service levels, respond to disruptions, and take advantage of new opportunities as they present themselves in the marketplace.
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