Global Custodian Private Equity 2018 | Page 13

[ 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 globalcustodian.com 13