Opportunity in times of crisis
Centaur Fund Services: Best Fund Administrator <USD30 billion – Although the private equity industry’s resilience is being tested by the Covid-19 crisis, the outlook is not gloomy on all fronts. Market volatility can lead to losses, but it also has the potential to provide opportunities.
Private equity firms are reviewing existing investments and considering new opportunities during this upheaval. Gavan McGuire (pictured), Head of Business Development at Centaur comments: “Before the pandemic, firms were grappling with finding opportunities for growth and development. This was a challenge for the simple reason that it’s a very competitive market out there. People now have the opportunity to re-think and reset. This will bring on a new wave of entrepreneurship which VC supporters will find attractive. Opportunities will be broad as new market opportunities are developed and investment decisions are accelerated – we have already seen a dramatic shift on how people are working now and possibly will want to work in the future.”
Aside from the crisis, PE firms have been expanding their operations across continents, into new jurisdictions and investments. As these operations expand across borders, the tendency for PE firms to keep administrative functions in-house is no longer practical. Although its not considered a ‘red flag’, building out internal processes and procedures is onerous and expensive. McGuire elaborates: “The technology is costly which is not practical for a business whose core function is not fund administration. Furthermore, it’s not simply a one-time cost:- Fund administration is specific skill set with systems that need to be continuously monitored and updated. Therefore, many PE firms are outsourcing these functions to third parties who do this as a core business.”
He adds that some jurisdictions, like Luxembourg and Ireland, require a regulated administrator. “The use of third party administrators builds a best of breed approach, as well as fulfilling a regulatory requirement. It also adds a third party independent oversight to the fund which is high on the investor radar.”
This takes on an even more vital dimension given the current environment. “At times like this, investors become extremely concerned about performance and are looking for reassurance that systems are in place to properly manage risk remotely – they prefer investment managers to focus on maintaining their underlying investments and not to have the distraction of having to evoke business continuity plans around administration and regulatory services. Centaur has remained 100% operational and has continued to meet client deliverables during this period of disruption.”
Technology is not just being driven by regulatory demands. McGuire also notes a trend in PE firms becoming more demanding with regards to technology: “PE firms are becoming more sophisticated as they increase their data knowledge. Excel spreadsheets are a thing of the past as we see many more funds using highly sophisticated technology such as Investran DX. These systems do not just run the portfolio data, they allow managers to look deeper and mine information on their underlying investments. This in turn allows them to make more informed and timely decisions about their business.”
Further boosting the trend to enhanced technology is the fact that GPs are growing more serious about offering the long-term reliability and transparent audit trail that investors now demand. Smart administrators are realising they need to increase their technology capabilities to service increasing complexity in fund structures and investment strategies.
McGuire elaborates, “Using a third-party administrator adds credibility to PE firms that move towards outsourcing. Maintaining accountability, transparency, security and credibility are all part of the service a firm such as Centaur provides in times like this. There is little doubt that markets will remain volatile in the near future but a partner like Centaur enables PE funds to navigate through these unchartered waters while reassuring investors that they are with a safe pair of hands.”
Partner & Head of Business Development, Centaur Fund Services
Gavan McGuire is a partner and the Head of Business Development at Centaur. He has over 20 years of industry experience and has worked in senior positions for Citi Hedge Fund Services and Bisys Hedge Fund Services. Gavan was previously a director of Hedge Funds Care UK, a charity focused on raising money and granting it to child welfare organisations. He has also participated in the AIMA communications committee.