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I
n 2013, Donald Trump was host
of The Apprentice; the UK was
residing in the European Union
(EU); the ‘Gangnam Style’ dance
was ( just about) socially acceptable;
Google Glasses were meant to be
the next big thing and most people
assumed blockchain was a tool for
acquiring crystal methamphetamine
and other narcotics’ paraphernalia on
the notorious Silk Road. It was also
the last time Global Custodian carried
out its private equity fund administra-
tion survey.
Outsourcing and private equity
typically have not gone together, and
many managers – until fairly recently
– self-administered their portfolios.
According to BNY Mellon estimates
in 2015, between 70% and 80% of
private equity managers performed
administration internally.
Having long found private equity
managers to be a frustrating market
to crack, administrators are being
assisted in their endeavours through
a combination of new regulations,
investor institutionalisation and strat-
egy diversification.
Regulation: A pain, but not a fatal one
In 2013, most asset managers in-
cluding private equity, felt they were
suffocating in a torrent of unstoppa-
ble and intrusive regulation, off the
back of public anger being levelled
at global banks. Managers were still
understanding the particulars of
Dodd-Frank’s Form PF, a non-public
Securities and Exchange Commission
(SEC) filing, while the Foreign Ac-
count Tax Compliance Act (FATCA)
was being readied for implementation
16
Global Custodian
The Private Equity Issue 2017
as a nervous private equity industry
looked on by.
Having been unkindly branded as
“locusts” by some of the more excit-
able elements within the EU, private
equity was understandably sheepish
in the early 2010s about what the
final contents of the Alternative
Investment Fund Managers Directive
(AIFMD) would look like.
A few pessimists even questioned
the very existence of the industry,
warning that bloated operational and
regulatory budgets would put diminu-
tive firms out of business.
Four years later, private equity is
managing more money that it ever
has in its recorded history, and while
regulatory change was agonising at
times, it did not prove terminal. Most
investors cooperated with FATCA
compliance and very few reports
surfaced of managers exiting recal-
citrant clients, for example. What is
irrefutable though is that managers
are reporting more and different in-
formation to investors and regulators,
a point made by Joe Patellaro, manag-
ing director, SS&C Global Private Eq-
uity Services. “2013 was about when
regulatory change began to really
impact private equity, and with that
came a lot of changes in behaviour
and activities,” says Patellaro.
AIFMD – while not as destructive as
many assumed it would be – has led
to cost increases. Managers reliant on
National Private Placement Regimes
(NPPR) deride the extent of regula-
tory arbitrage in member states, with
particular vexation reserved for the
Annex IV report, a document that has
seen immense gold-plating in certain