Private equity fund managers face a variety of pressures, including raising and retaining capital, finding appropriate investment opportunities, and generating returns that exceed investor expectations. To succeed, they need to keep abreast of changes in the industry — including investor demands for greater transparency and ever-growing reporting complexity — without disrupting their primary objective of managing the investment portfolio. Successful third-party fund administration involves focusing on several key areas to ensure your fund is ahead of the curve.
1. Outsourcing a third-party fund administration accounting team
For funds both large and small, heightened competition and investor demand mean that margin erosion is now a constant threat. In this environment, CFOs have become increasingly focused on improved operational efficiency, leveraging both technology and outsourcing as a bulwark against shrinking profits.
In a 2021 EY survey, when investors were asked which areas were most important for managers to offer flexibility, “most investors surveyed preferred flexibility in management fees.” The pressure to cut costs is real, and one way to reduce costs is through increased efficiency. While fund accounting is important, it can draw employee attention away from other vital functions.
Private equity CFOs would prefer their teams spend time on strategic, value-added activities like portfolio analytics and investor relations. More routine operational areas are generally viewed as cost centers, but still take up a large portion of managers’ time and attention. Outsourcing can allow your internal teams to be strategic, and JTC has a team of seasoned fund accountants to help free up valuable time.
2. Improving efficiency through technology
Unfortunately, many funds still use basic spreadsheets or physical documents that require time-consuming manual processes. Introducing technology can improve the accuracy and speed at which data is evaluated and reported on, which is good for the bottom line and for client relations.
But when EY asked investors which areas managers should be strategically focused on to benefit investors, only 4% ranked “enhancing middle and back-office processes” as their number one priority, and 2% ranked “front-office technology transformation” at #1. Investors don’t want managers wasting time and money developing new systems – they want you using something that has been proven to work.
JTC has long history of award-winning technology and a proven ability to create solutions that meet complex market needs in ways our competitors cannot. Our next-generation data processing framework delivers value through increased efficiency, transparency, security, and accuracy, giving you a better and faster picture of fund performance.
In addition, JTC’s proprietary eSTAC platform features built-in compliance and data security, institutional-grade accounting, simple document management, and unmatched transparency. It was designed with scalability in mind, so as you grow, we can grow with you, ensuring your choice of JTC will create a partnership that can last.
3. Easy and efficient onboarding
The key to onboarding success is having a dedicated team whose sole focus is setting up every client so they can service their needs efficiently for the life of the relationship.
As a new fund is onboarded, the data itself can present many challenges. Oftentimes funds will store data in many different formats, including spreadsheets, databases, and/or commercial general ledger (G/L) systems. As a result, bringing both financial and non-financial data from disparate sources into a new system can be a Herculean task. The obvious solution is to look for ways to remove the manual effort in order to develop best practices and create efficiencies.
Administrators that employ dedicated engagement management and an onboarding team are able to be flexible in accommodating varying fund needs. Some funds use all products, only certain products, or create their own services, and the flexible administrator is able to identify ways to efficiently meet all of those situationally unique needs.
Implementing a technical solution from an established provider enables funds to enjoy lower costs and shortened time-to-market. The most experienced third-party fund administration providers can now successfully transfer data from the majority of their clients’ funds to their platforms in just a few weeks.
4. ESG is here to stay
Investing in impact and ESG is more popular than ever, and the questions about whether impact investing is merely a trend that’s going to subside or if impact investments can perform on par with traditional ones have largely been answered.
Investors now expect more of funds when it comes to impact. According to the EY survey, 65% of investors expect funds to be able to provide a copy of ESG policies and procedures on request, and 76% said their scrutiny of managers’ ESG policies has increased in the last three years.
Funds have something to gain by establishing ESG principles and demonstrating their commitment to investors, so why don’t they? When asked, 59% of managers said the greatest obstacle to launching ESG alternative investment products was “lack of standardized methodologies to rate ESG effectiveness.” When it comes to drafting and complying with ESG policies, 57% said a major challenge was “obtaining quality data to measure and track adherence to policy.” It’s clear that many managers recognize the benefits of ESG policies and strategies, but don’t know how to measure and report on their effectiveness.
That’s where JTC comes in. A leader in impact tracking and reporting, JTC has pioneered industry-leading best practices, including methods for comparing impact across different types of investments. By providing investors with hard data that demonstrates the success of your ESG initiatives and the true impact of your investments, you’ll stand out from the crowd.
5. Automated investor reporting is the way of the future
In today’s climate, satisfying investor requests for financial data is one of the most difficult areas in which fund managers struggle to manage costs. For smaller firms in particular, investors’ expectations of on-demand access to fund information can be onerous.
While the automation of data reporting is tempting, CFOs remain concerned that this will sacrifice flexibility, thereby decreasing investor satisfaction. We believe we’ve solved this dilemma with the JTC Investor Portal (built into our proprietary technology platform), which offers investors 24/7 access to fund status, capital account financial data, document sharing, and personal alerts, thereby decreasing the number of customized reporting requests fund managers receive.
JTC’s Investor Portal allows custodians and investment managers to track performance and analytics in real time, and it alleviates other industry pain points such as compliance and data security.
Our technology-focused approach resonates with our clients, who see value in being able to simultaneously manage multiple databases and feeds, calculate valuations, make data-driven decisions, and employ augmented and artificial intelligence applications, but who would rather not develop those technical competencies in house.
6. Think globally
As competition has grown among private equity firms of all sizes, attracting capital has become as important to fund success as a prudent investment. One obvious way to expand a fund’s pool of potential investors is to look abroad. However, courting international investors brings novel challenges and risks.
Despite the potential hurdles, we believe there’s never been a better time for private equity firms to target European investors: current regulations are favorable, there are many viable routes to market, and initial efforts can be made with relatively little commitment of resources. Working with JTC allows funds to take advantage of our global reach and expertise in jurisdictions around the world, making fundraising in the EU achievable.
Ultimately, what all fund managers need is the confidence and flexibility to run their businesses the way they see fit, and the blend of technology and client service JTC offers as a third-party fund administrator provides them with the strong foundation they need to maximize their strategic advantage at an especially complex time in private equity management.
Today outsourcing is a widely used and accepted process, which is why so many industry leaders trust our in-house technology alongside our dedicated third-party fund administration.