Global Custodian Private Equity 2018 | Page 17

[ C O V E R 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 | 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 17