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Three Key Considerations for Private Capital Expansion

Alternative investment fund managers are planning expansion and diversification in 2024 and beyond. How can streamlined fund administration and operations help them meet their ambitions?

With banks displaying caution and businesses struggling to access investment, private capital is in a position to benefit as the rise in global interest rates pauses and rates potentially begin to fall in 2024.

For that reason, alternative investment fund managers are using the current lull to plan their move into new asset classes and jurisdictions.

As our Future Private Capital CFO research reveals, managers will be using more special purpose vehicles (SPVs), hybrid structures, and fund credit to help them achieve their investment aims.

However, while the rewards for private capital diversification are potentially huge, these are not easy wins. The move can add complexity and cost to fund operations and require new skills and specialties.

As funds weigh the chance to seize new opportunities in 2024 and beyond, they’ll need to look at streamlining operations to add speed and agility.

Here are three key considerations that should be kept in mind.

1. Fund ambitions come at a cost

In 2024, managers will be looking to grow their investor base and widen their pool of potential investment targets. But new geographies and asset classes bring new demands from regulators and limited partners. New jurisdictions require a knowledge of local counterparties, service providers, and business culture.

Expansion also necessitates alignment. For example, how do you coordinate local operations with central fund administration when dealing with increasingly dispersed and complex SPVs?

All of this takes time and focus away from what fund managers really want to be doing, which is making deals and deploying capital. The question is: how do funds streamline administration and operations in a way that helps managers grasp the opportunities of diversification without piling on cost and complexity? 

2. The global fund administration model can become overstretched

The favored operational model is a central fund operations team complemented by local employees wherever SPVs are domiciled.

This allows for a base level of central fund administration for every global entity, with a bespoke local layer on top. It’s an efficient, aligned model—or it is in theory. The challenge comes when both central and regional teams, already stretched, reach the verge of breaking point as managers expand and diversify.

Local teams are often small, sometimes just two or three people and often lack time-saving technology. They may have expertise in one area of fund administration or asset class but not in others. Ramping up pressure can lead to missed deadlines and compliance missteps. More work then has to be sent back to already overextended central teams.

With that in mind, ambitious managers have a decision to make. As they expand and diversify, how much time and money are they prepared to invest in streamlining central processes and filling gaps at the local level? And when will handing certain functions to specialist partners become more sustainable?

The importance of this decision is magnified as managers chase new opportunities and assets into new jurisdictions.

3. You can ease pressure with the right technology

Technology offers some easy wins. In particular, automating everyday actions can free up teams for more high-level tasks. For example:

  • Invoice and expense allocation management. The repetitive, time-consuming task of paying vendors can be standardized and automated, reducing complexity, increasing accuracy, and saving time.
  • Investor due diligence. A collaborative investor onboarding platform moves the process towards a self-service model. Investor due diligence is a hugely resource-intensive task. Automating simplifies fund administration and creates agility by allowing managers to deploy capital more quickly.

In these two examples, the technology must be integrated with other systems and rolled out to the global teams. However, they both demonstrate technology’s potential for streamlining operations, filling gaps, freeing up resources, and creating the foundations alternative investment fund managers need for expansion and diversification.

Again, the question is whether managers want to implement these technologies in-house, or partner with a specialist provider that already offers the software and expertise.

Either way, this is what funds should be thinking about now. There will be real opportunities for private capital in 2024 and beyond, but managers will need the partners, technology, and agility to grasp them.    

Download our Future Private Capital CFO report for more information.

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