Why today’s PE firms are increasingly looking to outsource – and what they should look for in a partner
The past few years have been a rollercoaster for U.S. private equity.
Record deal volumes and dry powder created vast opportunities for growth during the opening salvos of the pandemic. Yet in 2023 the sector recalibrated, as double-digit decreases in asset values, rising interest rates, and limited exit opportunities added pressure on GPs, who must now compete with more players for fewer allocation dollars.
Combine these two forces—significant growth potential, heightened competition—with new reporting requirements, the ongoing push for more fee transparency, evolving ESG considerations, and technological advancements, and it’s no wonder that PE firms are increasingly looking to outsource their fund administration to a third party.
Doing so can improve transparency and stability, lower costs, relieve pressure on the back-office, reduce regulatory risk, facilitate additional scale, and even differentiate your PE fund from the competition: According to Convergence, a Data and Analytics firm focused on the Asset Management Industry, only 58% of PE firms outsource administrative functions, after all, lagging well behind securitized asset funds, hedge funds, and hybrid funds.
But an outsourcing decision shouldn’t be taken lightly. Here are five questions PE firms should ask as they begin evaluating prospective partners.
Five Questions You Should Ask Your Fund Administrator
How will my team be structured?
Some fund administrators—particularly those who have scaled up for scale’s sake—may let client service fall by the wayside. As these organizations grow, their functions (investor relations, financial reporting, etc.) become siloed rather than integrated in an all-encompassing, client-centric way. They also may be spread out across various jurisdictions and time zones—and smaller funds may not get the “A” team that larger clients do.
U.S. PE work at JTC is done onshore from our Boston office. Each of our clients has an integrated team assigned to their account and will get immediate responses from anyone on that team they wish to contact.
Will you have a tailored approach and full range of service offerings to meet my fund’s particular needs?
Different funds have different needs. Early-stage funds want to keep costs down while showing investors they have the necessary infrastructure in place. Mid-market funds may face heightened regulatory requirements and require more back-office support. Larger funds may be looking to expand globally and add new strategies. No matter the size, certain PE funds may be more focused in specialized areas, like real estate and impact investing, that come with their own set of requirements.
A fund administrator with a full range of offerings will grow with you, and JTC’s scalable, technology-driven platform provides that range: PE funds can choose the level of support they want for the stage they’re at, drawing on experienced professionals in specific sectors to deliver the results.
Can you manage both global and local regulatory requirements?
As they grow, U.S. PE funds are increasingly looking overseas to raise capital. But operating in new jurisdictions comes with an entirely new set of reporting and regulatory challenges.
JTC’s U.S. PE team is based in Boston, but the firm is global and primed to offer expertise in overseas fundraising, global domiciliation, and jurisdiction-specific regulatory requirements across Europe and Latin America.
Are you leveraging the most technologically advanced solutions on the market?
The digital maturity of PE firms tends to lag comparable industries, underscoring the importance of a tech-savvy third party fund administrator. From due diligence, contract management and reporting to data management and onboarding, investors increasingly expect PE firms to leverage technology to cut costs, improve transparency, and streamline processes.
JTC not only provides simple document management systems, automated reporting solutions, an easy-to-access online portal, and cutting-edge data processing methods, but does so with industry-leading compliance and data security in place.
Who will be accountable for ensuring requirements are met?
Due diligence should focus on the processes, the available expertise, and the technology the administrator uses. Look for this kind of value during the selection process.
For instance, who will do the work? Who will review and approve it before it’s shared? Finding a fund administrator with SOC 2 Type 1 Audit certifications will be key to ensure proper controls and governance is in place.
Look for a Fund Administrator Who Listens
Communication is key to effective administration. Don’t hesitate to voice your needs and concerns—if you don’t speak up, you’re more likely to get generic answers and solutions. Look at the corporate culture of your administrator—do they share your organizational values? And again, most importantly, can this administrator support your growth, whether it’s operational or geographical?
The PE landscape will continue to evolve and grow in the years to come. Now is the time to put in place the most effective fund administration so you can seize the opportunities ahead.