[Prior to the 2020 pandemic and subsequent economic disruptions, assets invested in private markets (including private equity, venture capital, hedge funds and credit funds) had tripled from $2.5 trillion to $7.7 trillion since the previous Global Financial Crisis. According to The Future of Alternatives 2025 research by Preqin — a leading provider of data, analytics, and insights on the alternative assets community – this trend is expected to accelerate with AUM growth in these alternative assets to average 9.8% per year to 2025. Their study incorporates the impact of the 2020 pandemic into their forecast data. In fact, the pandemic turns out to be providing catalysts for growth and opportunities for private markets managers to invest in areas that have been affected by the pandemic and market disruptions.
This forecast of growth is expected to be driven in part by persistently low interest rates, high valuations and volatility of public markets, diversification expansion needs, and the search for yield and lower correlations. The pandemic also accelerated changes in fund administration technology, service levels, and strategic partnering capabilities that are enabling a level of business agility and resilience that can drive the industry to new opportunities.
Per Preqin: “The fact the industry and its service providers have managed to pivot so quickly in highly unusual times is clearly encouraging. The relationship between funds and their service providers may well evolve and be closer. Times like these that you find out who your valued and trusted partners and counterparties are and benefit over the long term. Working on issues such as increased transparency, fundraising efficiency, stakeholder (GP-LP) relationships.” (Preqin Investor Survey, April 2020)
To get a better understanding of the nature of the changes happening in the private markets, the Institute reached out to Evan Audette EVP, chief operating officer and Krista McCoy EVP, chief business development officer of Ultimus LeverPoint — one of the largest independent private fund administrators in the country.]
Bill Hortz: What did you see as the biggest challenges private funds faced through this time frame?
Krista McCoy: The biggest challenge for private fund managers was the need for management and operations teams to be extremely agile in responding to a disruptive environment. They suddenly needed increased and immediate access to a whole slew of data and analysis on issues such as cash flow forecasts, capital calls, liquidity positions, fundraising status, quarterly reporting, auditor sign-off and the list goes on.
Initially, many fund managers moved quickly to coordinate drawdowns on lines of credit and/or issue capital calls to ensure liquidity to support fund and portfolio company operations as needed.
Hortz: Which areas of support were most requested by fund managers?
Evan Audette: Due to an increase in inquiries and concerns from Limited Partners (LPs), many managers requested that reporting packages from administrators be issued ahead of their normal deadlines, requests for ILPA-compliant reporting intensified, and access to “real-time” reporting capabilities via portals became a priority.
Also, many previously scheduled initial fund closes were delayed due to so many uncertainties surrounding Covid and its economic impact. However, within 2 to 3 months of the initial lockdowns in March, many managers realized the opportunities available in the market, and needed to quickly move forward with initial closes. This required administrators to deploy additional resources for impacted clients to ensure that the execution of subscription documents, capital call notices, and lines of credit were completed as quickly as possible.
For some managers, the pandemic exposed certain risks, such as lack of adequate staffing internally and disruptions due to the remote working environment. This led to many managers who already outsource their fund administration functions looking to their administrators to provide additional services, such as management company servicing and accounting, tax preparation and filing services, and enhanced AML/KYC services.
Hortz: How did fund administrators respond to these challenges?
McCoy: As a fund administrator, we spent a good amount of time, money, and effort working to solve these problems for our clients including a push for straight-through processing such as electronic submission of subscription docs and other documents via DocuSign.