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offering covering multiple strategy sets
such as real estate, hedge funds, long-only
and infrastructure, for example.
“When selecting an
administrator, a manager
needs a strategic partner who
is committed to the business
and also highly specialist.
PRIYA NAIR, GLOBAL HEAD OF PRODUCT
MANAGEMENT FOR PRIVATE EQUITY AND REAL
ESTATE, RBC INVESTOR & TREASURY SERVICES
Simultaneously, a well-capitalised bank
presents a significantly lower counterpar-
ty risk than a provider without balance
sheet, a point made by Sarj Panesar,
head of business development at Societe
Generale Securities Services. While a lot
of standalone providers provide bundled
services such as AIFMD depositary, banks
have far more breadth. “Banks can sup-
port depositary, FX, cash management,
capital call financing, LBO financing,
M&A advisory in addition to administra-
tion,” adds Lynch.
Others agree. “Banks can truly provide
a one-stop-shop for private equity firms,”
says Steve Langton, managing director,
alternatives sector at State Street. “A pri-
vate equity firm may start off investing in
privately held assets, but as their business
evolves and product range diversifies, so
will their servicing needs and business
requirements. It is in areas such as global
custody, fund financing, FX and market
analysis where bank owned administra-
tors are able to truly differentiate them-
selves. This allows private equity firms to
focus on their core competencies rather
than having to manage multiple service
provider relationships.”
Not everyone is convinced by the bank-
ing model, arguing it exacerbates counter-
party risk at managers if they concentrate
their book of business too heavily at a
single provider. One expert – speaking
anonymously - said banks have repeat-
edly overegged their credentials when
pitching their bundled offerings. “Banks
have been saying to private equity for
years that they can offer a bundled service
proposition, but I have yet to see it.”
Standalone providers routinely high-
light their flexibility, and ability to deliver
highly tailored products for very spe-
cialist clients. A handful of standalone
administrators are incidentally backed
by private equity capital, enabling them
to invest a lot of money into their own
businesses or finance acquisitions.
One expert - who did not want to be
named – said, however, that potential
conflicts of interest at private equi-
ty-backed administrators need to be care-
fully managed. “If a private equity-owned
administrator was servicing its owner,
then it would be a cause for concern in
any due diligence.” Nonetheless, market
participants point out such fears have
largely been discredited, as private equity
owned administrators often have robust
Chinese Walls partitioning their owners
from their portfolio companies in such
circumstances.
Some argue large standalone shops
provide the most continuity for clients.
“Based on what I have seen, a lot of the
boutique private equity and real estate ad-
ministrators are either up for sale or will
be up for sale fairly shortly, because they
“Private equity is one of the
few asset classes whose AuM
is growing briskly.”
IAN LYNCH, GLOBAL HEAD OF
ALTERNATIVE INVESTORS, BNP
PARIBAS SECURITIES SERVICES
are owned by private equity managers
as fund investments. Likewise, a number
of banks have sold their private equity
administration businesses, so we feel the
big standalone providers offer the most
stability for customers,” says Bhagesh
Malde, global head of real assets at SS&C
Technologies.
Most managers ultimately just want
assurances their administrators are com-
mitted to the business. “Private equity
is a long-term investment strategy with
an average fund life-cycle of seven to 10
years. When selecting an administrator, a
manager needs a strategic partner who is
committed to the business and also highly
specialist. Continuity is very important
for managers,” explains Priya Nair, global
head of product management for private
equity and real estate at RBC Investor &
Treasury Services (RBC I&TS).
S T O R Y
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O U T S O U R C I N G ]
What makes a good private
equity administrator:
“Administrators need deep knowledge
of the industry and the ability to remain
flexible with an asset class that does not
always follow a set formula. This requires
a nimble platform including subject
matter experts with bench depth to deal
with high volume in short time periods as
well as an IT platform that can meet the
changing requirements of the industry.”
Alan Flanagan, global head of private
markets, BNY Mellon.
“Each private equity fund is going
to have variances in its structure, its
valuation policies, its fee calculations
and its investor requirements. Working
successfully with private equity clients
takes a lot of flexibility and experienced
personnel who genuinely understand the
sector and who can work through the
specific needs of each client to tailor the
services accordingly. In addition, private
equity funds need corporate services as
well. Large private equity funds can have
significant numbers of SPVs holding
their investments, and administrators
that can administer both the fund and
the investment vehicles have a real
advantage.”
Dan Smith, head of US fund services
operations, Trident Trust
“Service, expertise, systems and process-
es are all the characteristics of a good
administrator. Giving a small PE shop
the ability to have a team with resources
and ancillary services, that is able to
advise on industry trends, best practices
and provide back up for audits, cash
movements, etc is invaluable to the CFO
and PE firm. The opposite: inexperience
in the industry, new/small firm, or lack of
commitment to the industry (i.e. enter-
ing when it’s growing and then allowing
products to languish when it’s not) or
clients (through acquisitions or mergers)
would be red flags.”
Peter Sanchez, head of North America
Alternative Fund Services,Northern Trust.
Private Equity Issue 2018
globalcustodian.com
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