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significant deleveraging and the res-
toration of more conservative lending
practices at systemically important
financial institutions (SIFIs).
As a result, numerous SMEs cannot
obtain bank financing, and private
credit has intervened, sensing strong
yield opportunities. “Banks are pulling
back from lending, and private equity
have identified a potential opportu-
nity,” says Bailey. Private equity is not
just strengthening their credit and loan
operations, but launching other new
product suites too.
“When I look at our clients in 2013
“Public pension funds continue to account
for the largest proportion of capital
invested in private equity.”
CHRISTOPHER ELVIN,
HEAD OF PRIVATE EQUITY PRODUCTS, PREQIN
versus today, some of the same names
are on the list, but they are different
in terms of complexity and size. Four
years ago managers were focused, for
example, on buy-outs and launched
closed-ended products. Today they may
be multi-product or hybrids and semi-
open ended or open ended. Others
were historically institutional only, and
20
Global Custodian
The Private Equity Issue 2017
now they are setting up BDCs to attract
retail money,” says Estrada.
As private equity strays beyond the
leveraged buy-out (LBO) model into
private credit, it is essential they imple-
ment the correct operational processes.
“Managing a direct loan or credit-ori-
entated strategy in a private equity
structure imposes different operational
needs to a traditional buy-out, real-es-
tate or venture capital model. The skills
are different, as is the technology,” says
Patellaro.
Private credit brings a lot of oppor-
tunities, but managers are reluctant to
hire new staff or integrate expensive
technologies into their middle and back
office systems. Instead, they are calling
up their administrators. Providers of
multi-asset class or highly specialist
private equity administration – wheth-
er they are banks or standalones - are
in a good position to capitalise on the
industry’s exploration of new asset
types.
Manager due diligence on any service
provider – including administrators - is
an absolute precondition. The investor
warned that some unproven adminis-
trators – whose hedge fund revenues
have slowed or deflated – are peddling
for private equity business.
“Too many fund administrators are
jumping into private equity for the
wrong reasons, usually because their
hedge fund administration businesses
are low margin or shrinking. I worry
that some of the small, one-time hedge
fund administrators are trying their
hand at private equity without invest-
ing in systems, technology or people.
If administrators have a poor under-
standing of the asset class, managers
and investors are put at risk,” adds the
investor who did not wish to be named.