Private capital managers are expanding the scope of asset classes for their investment strategies. This trend comes with more complex accounting needs and demands enhanced technology solutions. Â
PARTNER CONTENT
Private capital managers are expanding the scope of asset classes for their investment strategies. This trend comes with more complex accounting needs and demands enhanced technology solutions.
“Private debt has changed. As we continue to look forward, there’s going to be more growth in the areas of bank loans, distressed debt and debt instruments,” Aani Nerlekar (pictured), senior director, solutions management and consulting at SS&C Advent, outlines. “This is a complex arena and managers need technology with the ability to account for these investments on various dimensions. This technology needs to give them end-to-end look-through, from the investment to the end investor, and the ability to account for it accurately.”
Historically, PE managers did not always adopt end-to-end solutions incorporating accounting related to portfolios, funds, and investors. “That look-through capability has become crucial for investors, especially as we see our clients move into hybrid assets,” Nerlekar notes.
Further, the fee terms investors demand are evolving and becoming more complex. Investors are looking for special or beneficial terms rather than the standard structure. So, these features add complexity and are becoming more commonplace, creating a need for a more holistic, digital approach to accounting.
Managers are no longer simply looking for technology solutions in isolation. The rising appeal of co-sourcing and full outsourcing results in a more pronounced need for technology to cover all functions revolving around reconciliation, processing investment activity, capital calls, and distributions. Nerlekar says: “Managers are seeing the value in outsourcing those specific tasks or fully outsourcing to a fund administrator like SS&C while still maintaining complete control of the technology and their data.”
Working with third parties also reduces key man risk, particularly relevant in the current competitive talent market. “Hiring and retaining someone to carry out back-office tasks is much tougher now than pre-pandemic. So outsourcing also lowers that burden and the cost of ownership,” says Nerlekar.
The ESG dimension
Sustainability concerns remain high on investors’ agendas; PE managers have begun to explore ESG investing. Managers hoping to succeed in this space are expanding their expertise, focusing on building their front-office team and finding traders and portfolio managers who can support this investment philosophy.
Nerlekar explains how technology and services can help support a manager’s back-office functions, thus freeing up budget and time to focus on the investment expertise on both the buy-side and the sell-side of their business.
“You need a system to do all the work accurately and save costs. This will allow managers to go and hire higher caliber front-office professionals to source better deals and investment opportunities,” he says.
Data also plays a key role in this expansion. “Managers need a technology solution with easily available data, especially ESG. Investors can then make intelligent decisions about what they want to invest in,” says Nerklekar. Managers can access ad hoc reporting, graphing, charting, and historical trend analysis.
“Not having data immediately available can be a key risk for PE managers,” Nerlekar notes. “Managers can miss out on winning some investors if they don’t have the technology to provide that look-through reporting to their clients.”
Making the best use of these technology solutions helps managers meet their fiduciary responsibilities, leading to greater take up of managed services.
“Managers are pivoting the way they think about technology vendors and are now considering them as more of a managed service vendor to get data to investors,” Nerlekar says.
Managed services can also support managers in their foray into different asset classes. For example, traditional hedge funds moving into private capital can receive guidance from third-party partners who have experience in the area.
Nerlekar comments: “Managers might not have the knowledge to move into certain asset classes, from an operational perspective, and therefore having a vendor with robust expertise in these assets can help them build out their internal knowledge and understanding.”
He also notes the growing drive to regulate the private capital industry. “Historically, private markets have not been as regulated as the hedge fund space. However, as more regulation is expected, having a technology platform that can scale and modernize as the industry evolves is critical.
“To support these regulatory requirements, managers will need a lot of technology and managed services to allow them to scale without taking on higher cost of ownership.”
Aani Nerlekar, senior director, solutions management & solutions consulting, SS&C Advent – Aani joined SS&C Advent in 2011 and is based in San Francisco. He brings a wealth of hands-on experience to the team, working closely with prospects in understanding their business needs, as well as functional and technical requirements around the front, middle, and back office. Aani is part of the Solutions Management team, working with Product Development on prioritizing the road map, and assisting with the design of new features.
