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investor type. However, new players
have entered the asset class. While
few in number, sovereign wealth funds
(SWFs) account for the second highest
“With significant sums of capital
involved in co-investments, the
reporting demands can be equally high.”
CESAR ESTRADA, HEAD OF PRODUCT MANAGEMENT FOR PRIVATE
EQUITY AND REAL ESTATE FUND SERVICES, STATE STREET AIS
proportion of invested capital which
is a reflection of their suitability to the
illiquid and long term nature of the as-
set class,” says Christopher Elvin, head
of private equity products at Preqin, a
data provider.
This new money has forced private
equity to change their business oper-
ations. Having spent the last ten years
compelling hedge funds to outsource
NAV (net asset value) calculations and
valuations to independent providers
and refusing to invest in managers
who self-administered their portfolios,
institutions were taken aback by the
high levels of in-house administration
at private equity. “Self-administration
is just a no go area for us,” says one
investor, speaking anonymously.
Self-administration is rife with poten-
tial conflicts of interest. Just ask anyone
who had money exposed to Madoff In-
vestment Securities for proof. Despite
this, private equity has been slower
18
Global Custodian
The Private Equity Issue 2017
than most to move away from self-ad-
ministration, with managers expressing
misgivings that third parties properly
understand what they do. These scep-
tics – to an extent – have a point.
Administering a vanilla European,
long-only equity fund is unproblematic
but private equity necessitates more
attention and care as it is so bespoke.
Providers have, however, made in-
roads with private equity. “Service
providers with sophistication and
critical mass can quickly demonstrate
to private equity managers that they
have credibility and credentials to help
firms – even those who are very large -
with their operational requirements,”
adds Patellaro.
Institutional investor disdain for
self-administration is not the only
reason why private equity has been
courting external providers. Insti-
tutions need more information from
managers of all stripes including data
on counterparties, operations, cash-
flows, and fees. While the concept of
investor reporting is not totally foreign
to private equity, the extent of the
information required by these newer
institutional clients is.
Fees are a perfect instance of this. In
2015, the Institutional Limited Partners
Association (ILPA) announced it would
launch a fee template for private equity
managers, which would be distributed
to LPs. This self-regulation by ILPA
overlapped with a number of SEC
settlements against big-name manag-
ers for poor fee practices, including
non-transparent client charges and im-
proper expense allocations, as well as
institutional insistence – most notably
from CALPERS – for less unambigu-
ousness around carried interest.
ILPA template acceptance is slow-
ly becoming more widespread and
managers are having to find compro-