The future fund model needs global perspective

As private capital crosses borders, back and middle-office functions need to develop an international mindset.

As private capital matures and becomes more competitive, asset managers naturally turn to specialised funds as they look for new opportunities.

Increasingly the search for new investors ranges across borders and time zones, while the best investment opportunities in the desired sector may well already be aggregated in favourable locations around the world.

The result is that most growth-focused private capital asset management firms have an international outlook when it comes to deal-making and fundraising. The challenge for many of them is that their fund operating models have not kept up.

When you deal with far-flung assets and investors, you need international expertise. That’s as true for the back office as it is for the front.

Private capital looks for global scale

Large private equity and real-estate funds have operated internationally for years but today all flavours of funds are competing in a global marketplace.

For example, as private markets have become more sophisticated, sector-specific funds have sprung up that focus on highly specialised asset classes or locations.

A real-estate fund manager might specialise in purpose-built student accommodation or distribution warehouses, for example.

Such a narrow focus has clear advantages, but to thrive and grow, niche asset managers often need global scale in terms of capital.

The compliance challenge to fund models

Whatever their size and focus, sooner or later global funds hit turbulence.

Fundraisers quickly find that fund marketing is treated very differently by regulators in different countries. The back office soon discovers that every jurisdiction has its own compliance and reporting quirks.

And regulatory requirements are rarely static. An asset manager who last had dealings with a jurisdiction three years ago might find that in the intervening years, the regulatory landscape has moved on.

The complexity of global private capital funds

Managers, assets, and investors are dispersed around the globe. The structures themselves are housed in whichever jurisdiction offers the best combination of cost efficiency, administrative simplicity or regulatory protection for investors.

All of this magnifies the complexity of managing and maintaining a global private capital fund.

That fund might have international assets aggregated in a holding company, which in turn is part of a master holding structure.

Below that is the fund vehicle itself, and—most likely—carry vehicles for the asset management team and limited partners. There may even be a side pocket for special circumstances.

Add it up and the back office may be dealing with, say, five or six jurisdictions, each with its own standards, laws, and culture.

Simultaneously, global investors bring with them a wide range of expectations around data and the immediacy of information.

It’s just one more reason that fund operating models need to develop a global view—and quickly.

Nurturing a broader outlook for global funds

That global view needs to include local knowledge around regulation, business culture, and investor expectations, and be repeated in every applicable jurisdiction.

For efficiency, it should be combined with a centralised administrative team to take care of the generic heavy lifting that repeats in jurisdictions and for investors.

Above everything, the fund model needs a helicopter view to oversee global compliance timetables and monitor regulatory and legal developments.

It’s possible to do this in-house—and some larger asset managers continue for now to run central compliance and administrative teams combined with local employees in every jurisdiction.

But it’s becoming harder. Recruitment has been a challenge since the pandemic and talent management has become far more complex.

With that in mind, many asset managers worry that overseeing global operations teams is taking focus and limited resources away from core functions.

Some are turning to outsourcing as a way to balance local knowledge and central support with scalability. But there is no one-size-fits-all solution and funds must choose the right model for their circumstances and investor base.

However they do it, they need to make fund operations fit for the increasingly globalised nature of private capital. The opportunities are immense, but will only be grasped if front and back-office teams share an international outlook.

Why Intertrust Group?

• CSC completed its acquisition of Intertrust Group in November 2022. Together we offer a global solution for subsidiary governance, fund strategies, and capital markets transactions, with tools to help fund managers navigate the ever-changing compliance and regulatory environment that they face. With capabilities in more than 140 jurisdictions, we are able to do business wherever our clients are—and we accomplish that by employing experts in every business we serve.
• As a strategic partner, our proprietary innovative technologies are combined with global knowledge and experience to deliver added-value services catering for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
• Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration and corporate actions, investor relations, and portfolio management.
• Our Halo Framework identifies and describes a best-in-class, next-generation fund operating framework for private capital. Download it here.