[ A N A LY S I S ]
VS NON-BANKS
does it make sense to partner with a traditional bank or an independent administrator?
THE NON-BANK OPTION
While banks regularly highlight their balance sheet strength as an enabler, some of the biggest private equity admin-
istrators globally are independents and have large treasure troves of cash to spend on technology, infrastructure and
acquisitions. A handful of providers are supported by private equity cash themselves giving them ample resources
to spend on expanding their businesses. Many independent administrators also say they are far more flexible than
banks in accommodating client requests, while smaller providers insist that their nimbleness serves as an advantage
in delivering bespoke products to clients.
The risk of appointing smaller administrators is that some lack the capital of the major banks, and many managers feel
this is a counterparty risk. After all, nobody ever got fired for appointing an IBM, and the same rings true in adminis-
tration. If a small administrator goes out of business, porting to a secondary provider can be an operational headache.
Large banks and established standalone administrators also have superior brand awareness, something their smaller
compatriots lack. As institutional investors prefer their managers to utilise household names, going with a smaller
administrator can be disadvantageous to capital raising.
Critics of the private equity-owned administration model are certainly in abundance. They point out that conflicts
of interest between owner and administrator must be carefully managed, something which needs to be facilitated
through Chinese Walls. Other experts point out such fears have largely been put to bed, and that private equity
owned administrators will have robust Chinese Walls in place. Even so, private equity-owned administrators also
pose a continuity risk for clients as backers will typically want to sell the provider after several years, again causing
potential disruption.
Private Equity Issue 2018
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