Many Asian private capital funds are considering upgrading fund operations to make them both scalable and flexible.
Compared to the U.S. and Europe, Asia’s private capital sector focuses on smaller deals and higher transaction volumes. Fast growth is one of the popular aims for investors in the region, with many investments set up as single-asset funds (or case funds).
Traditionally, managers have resisted what they considered unnecessary investment in fund operations. Many funds, even some of the larger ones, are 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 risk and return, and taking another look at their fund operating models.
They are starting to realize that ad hoc, disconnected, and underfunded back-office functions could prove to be a drag on future growth.
The case for standardized fund operations
Frankly, 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 growing more demanding and developing higher expectations around fund governance, transparency, reporting, etc. Our recent exclusive research with Everest Group with more than 150 heads of private capital firms shows that even in the slower-moving private equity space, limited partners globally are starting to expect weekly or even daily updates on the position of investments and special purpose vehicles.
More than 90% of respondents said that providing responsive systems and customized offerings to satisfy this expectation were the top two focus areas of their investor servicing strategies.
As managers fulfil more requests for tailored reporting, they also must keep on top of an ever-changing governance landscape. Local differences in regulatory requirements mean managers with cross-border reach are compelled to create bespoke compliance frameworks.
This is why we created the Halo Framework. Based on the findings of extensive research, the insight report identifies and describes a best-in-class, next-generation fund operating framework for private capital.
Standardization and customization: a contradiction?
Many Asian funds are small in relative terms. As they grow, they’re bumping up against these growing complexities and wondering how to respond.
As the pressure on the back office grows, many seek ways to standardize 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 standardization make operations more efficient? It’s a good question. Private capital deals are often complex and highly bespoke. In general, it’s hard to find two identical structures, even in the same general partner’s book.
The answer begins with data. For example, standardized processes can be used to source, store, and validate portfolio company data in a highly efficient way.
Technology can then be used to quickly slice and dice the data into customized reports that give investors exactly the level of bespoke detail they want.
Similarly, technology can be used to standardize many back-office processes up to a point. After that, operations must be flexible enough to add a layer of customization on top.
There is a cost to all this, and in some cases, fund managers will have to pass it 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 a flexible standardization 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 U.S. and Europe in the implementation of better technology and more streamlined processes.
Nevertheless, more firms now understand that the way forward is creating scalable, standardized processes, tailored with a customizable layer.
Asian markets are 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 must be able to efficiently administer growing volumes of assets under management and numbers of transactions.
That will require streamlined processes that square the circle of standardization and customization, driven by new innovations in data and technology.
Why CSC
CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader, we work with funds of all sizes, from start-ups to the largest and most experienced fund managers in the world. Founded in 1899, CSC prides itself on being privately held and professionally managed for more than 120 years. We are the trusted partner of choice for more than 90% of the Fortune 500® and more than 70% of the PEI 300. CSC has office locations and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia Pacific, and the Middle East. We are a global company capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve. We are the business behind business®. Learn more at cscgfm.com.