As private equity (PE) shops scan the competitive landscape, they’re identifying new business opportunities. Approaching previously untapped target markets and adopting broader distribution models, they’re appealing to a wider variety of individual and institutional investors hungry for alternative investments—which are proving increasingly attractive to investors given the low-yield, low-return outlook for traditional asset classes.
Turning to third-party support
To help navigate the regulatory requirements and develop effective processes and procedures, many PE fund operators are turning to third-party administrators to handle the non-core back-office tasks required of any fund offering. They are finding value in bank-affiliated administrators to solve for banking services which include custody, loan servicing, credit lines, cash management and foreign exchange services. In addition, many private equity managers are launching retail products that are typically serviced by custodial banks.
Expanding access to a market solution
To get ahead of the wave, many PE shops and larger multifaceted asset managers are taking a step that was virtually unheard of not long ago. They’re developing funds and registering them under the auspices of the Investment Advisers Act of 1940. And when inspiration strikes, innovation is quick to follow, especially within savvy PE shops that excel at discovering new and profitable market niches. Yet, converting a unique investment idea into a marketable fund offering – and subsequently handling the day-to-day maintenance of the fund – requires considerable behind-the-scene legwork.
How does a third-party administrator add value?
Frequently, the decision to go outside the firm for back-office duties is a clear-cut business decision. Many times, it simply comes down to scale. As private equity shops get larger and add more products, they typically don’t want to grow their own infrastructure. It will hit an inflection point where they don’t want the growth to drive costs higher and require additional technology and headcount.
To ensure that a third-party administrator’s offerings make sense, the private equity shop should consider the outside party’s qualifications.
• Tenure and expertise: A third-party should have a handle on legal and regulatory requirements, as well as all of the steps needed to take a fund to market.
• Client service: From initial onboarding to ongoing needs, support should be high-touch but low-stress.
• Technology capabilities: Up-to-date systems should effortlessly handle all back-office chores, ensure stability and security, and possess the expansion capacity to meet the needs of a growing PE shop.
• Scalability: Along with technology, an outside firm should have the ability to ramp up all of its efforts as needed to support the PE shop’s growth.
• Access to other products and services: Beyond the fund-related business, a PE firm could benefit from a third-party’s full suite of offerings.
Why a bank is an ideal partner
A PE firm should focus on generating returns in an incredibly competitive environment, not tending to legal, compliance, technology and cash management matters. Those duties, however, are commonplace for banks, especially institutions with years of experience in partnering with investment firms.
For example, as one of the leading providers of fund administration services, U.S. Bank offers:
• Extensive legal, regulatory, custody, tax and compliance expertise and insights
• Sophisticated technology capabilities, including extensive redundancy, backup and disaster recovery infrastructure
• Seamless access to lines of credit and other financing facilities
• Reporting functionalities tailored to each client’s unique needs
• Client service teams well-versed in PE industry best practices
• Deep cash management capabilities to enhance performance while providing needed liquidity
• Experienced foreign exchange teams
• Wealth management resources
• Corporate banking coverage for portfolio or fund level financing
Whether you’re currently evaluating the demands of launching a private fund or beginning to ponder a wider distribution of your offering, working with a bankbacked administrator to unburden some of your back-office responsibilities could prove valuable.
To learn more about the comprehensive fund administration services offered at U.S. Bank, visit usbank.com/globalfundservices.
U.S. Bank Global Fund Services is a wholly owned subsidiary of U.S. Bank, N.A. U.S. Bank does not guarantee the products, services, or the performance of its affiliates and third-party providers.
