Standardised yet customisable? Squaring the fund operations circle in Asia

Many Asian private capital funds are considering upgrading fund operations to make them both scalable and flexible.

Compared to the US and Europe, Asia’s private capital sector is a place of smaller deals and higher transaction volumes.

Fast growth is one of the more popular aims for investors in the region, with many investments set up as single-asset funds (or case funds).

Traditionally, they have resisted what they considered unnecessary investment in fund operations. Many funds – even some of the larger ones – have been run by a small operations team in which an in-house accountant covers most back and middle-office functions such as bookkeeping, due diligence and regulatory reporting.

But that attitude is changing. Asian fund managers are weighing up risk and return, and looking again at their fund operating models.

They are starting to realise that ad hoc, disconnected and underfunded back-office functions could be a drag on future growth.

The case for standardised fund operations

To be frank, managers are looking at more sophisticated back-office functions because, in many cases, the market is forcing them to do so.

In Asia, as elsewhere, investors are becoming more demanding and have higher expectations around fund governance, transparency, reporting, etc. Intertrust Group and Everest Group’s recent exclusive research – covering more than 150 heads of private capital firms – shows that, even in the slower-moving private equity space, LPs globally are starting to expect weekly or even daily updates on the position of investments and SPVs.

More than 90% of respondents said that providing responsive systems and customised offerings to satisfy this expectation were the top two focus areas of their investor servicing strategies.

As managers have to fulfil more requests for tailored reporting, they have to keep on top of an ever-changing governance landscape.

Local differences in regulatory requirements mean managers with cross-border reach are being compelled to create bespoke compliance frameworks.

This is why Intertrust Group has created the Halo Framework. Based on the findings of their extensive research, the white paper identifies and describes a best-in-class, next-generation fund operating framework for private capital.

Standardisation and customisation: a contradiction?

Many Asian funds are still quite small in relative terms, but as they grow they are bumping up against these growing complexities and wondering how to react.

As the pressure on the back office grows, many are looking for ways to standardise workflows in a way that allows fund administrators to handle growing deal volumes without piling on costs.

The question they ask is this: in a world of bespoke deal-making, how can standardisation make operations more efficient?

It’s a good question. Private capital deals are highly bespoke and often complex. In general, it’s hard to find two identical structures, even in the same GP’s book.

The answer has to start with data. Standardised processes can be used to source, store and validate portfolio company data (for example) in a highly efficient way.

Technology can then be used to quickly slice and dice that data into customised reports that give investors exactly the level of bespoke detail they want.

Similarly, technology can be used to standardise many back-office processes up to a point. After that, operations must be flexible enough to add a layer of customisation on top.

There is a cost to all this, and in some cases, fund managers will have to pass that on to investors. That is certainly a challenge in the highly cost-conscious Asian market.

But in a world of growing investor and regulator demands, the need for this “flexible standardisation” model is hard to ignore.

The challenge of change in private capital

Change is always challenging. In Asia we have started along the path to more efficient fund operations, catching up with the US and Europe in the implementation of better technology and more streamlined processes.

Nevertheless, more firms now understand that the way forward is creating scalable, standardised processes, tailored with a customisable layer.

Asian markets are currently facing the same headwinds as many other parts of the world, but private capital is likely to prove resilient.

In the medium and long term, there is considerable growth potential for both local Asian managers and overseas firms looking for new opportunities in the region.

But growth requires a new focus on fund administration and operations. The back office has to be able to efficiently administer growing volumes of AUM and numbers of transactions.

That will require streamlined processes that square the circle of standardisation and customisation, driven by new innovations in data and technology.

Why Intertrust Group?

• As a strategic partner, we offer a full-spectrum service tailored to meet all back-office needs throughout the lifecycle of a private capital fund – this against a background of ever-increasing reporting demands.
• Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration, investor relations and portfolio management.
• Intertrust Group has 70 years’ experience providing world-class trust and corporate services to clients around the world. Intertrust Group has been acquired by CSC, the world’s leading provider of business, legal, tax and digital brand services, worldwide.

To gain a deeper understanding of the forthcoming challenges, Intertrust Group and Everest Group have conducted extensive, exclusive research that covers more than 150 leaders and heads of private capital firms. The result is the Halo Framework, a comprehensive report that sets out the next-generation operating framework for private capital. Download the full report, Introducing the Halo Framework.