[ A D V E R T O R I A L ]
The importance of
data in today’s private
equity ecosystem
How data can be leveraged as a differentiator in the private equity world.
What’s the outlook for private equity
managers in the current macroeconomic
climate?
We see the continuation of a number of
key trends. First, an increase in capital
inflows, coupled with mounting fund
complexity. Second, a growing share of
non-US limited partners flowing into US
alternatives, especially real estate assets
— an area where we have significant expe-
rience and fund exposure. Third, we also
see an increasing amount of investment
activity by US private equity managers
into non-US real estate assets.
We believe this continued globalisation
of investors and investments offers com-
petitive opportunities for funds who are
well equipped to deal with the attendant
complexities — including AML/KYI com-
pliance and the efficient onboarding and
servicing of a more diverse base of limited
partners.
How vital is data management becoming
for private equity managers?
Whether handled internally or out-
sourced, the current fund administration
environment is built upon a framework
of legacy applications, extensive use of
spreadsheets, and little to no big data
techniques or technology. Yet in an envi-
ronment of intensifying competition —
and demands for greater efficiencies and
more robust compliance — we believe this
status quo is unsustainable.
As a true financial technology company,
we see data — how it can be leveraged
to mitigate risk, reduce costs, increase
transparency, optimise back-, middle- and
front-office capabilities, and deliver high-
er value — as the critical differentiator in
the PE ecosystem, and we have grounded
our mission and our business model on
that belief.
Will outsourcing become a central part of
private equity models and strategies going
forward?
Historical data certainly supports that
conclusion. Hedge funds have fully
crossed over to an outsourced administra-
tor model, and private equity is following
the same trend — though not with the
same urgency that drove hedge funds
post-Madoff. According to numerous
industry surveys, approximately 35% of
private equity funds outsource their ad-
ministration, while around 65% maintain
it in-house — but acknowledge they are
leaning towards outsourcing where direct
benefits are evident.
One GP recently stated it succinctly:
“My core competency is investment
management, not financial administra-
tion. The more time I spend in my core
competencies, the better my IRR, and
the happier and more loyal my limited
partners.”
How will managers use administrators and
data vendors to generate alpha?
Ideally, the administrator is well posi-
tioned to deliver what I would call opera-
tional alpha — a combination of operating
efficiencies and business intelligence that
enable a fund to achieve returns above
Michael Halloran,
CEO, NES Financial
levels achieved today. Ultimately, that will
depend on the administrator’s big-data
capabilities — its ability to aggregate
internal fund data, external market data
and asset-level performance data in a re-
al-time environment that powers greater
analytic capacities.
These kinds of tools require substantial
investments in technology and talent
on the part of the administrator. But for
funds, the upside is significant. It can be
measured in a fund’s ability to rapidly
analyse opportunities and performance
— and make faster, better, smarter asset
allocation decisions.
The Private Equity Issue 2017
globalcustodian.com
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