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In this report:
LPs have more choice
North America attracts investor flows
Increased demand for secondaries unmatched
Exits show signs of life
Sponsored content: Ultimus Leverpoint
By Cameron Joyce, CFA, CAIA
July 27, 2023
Exit rebound sparks hope for recovery, but credit risk may start to create downside
As sentiment starts to improve among private equity investors this quarter, fundraising continues its downtrend, allowing LPs to be selective in their allocations and prompting renewed interest in re-ups and secondary funds opportunities. But the market is watching the rate-hike cycle closely, and wondering whether credit upheaval may replace inflationary risks as the year unfolds.In Private Equity Q2 2023: Preqin Quarterly Update we present insights from research with investors, covering regional investment preferences, as well as shifting attitudes on which strategies hold promise within the asset class over the coming months.
Investor sentiment toward private equity has stabilized, according to our June 2023 investor survey, despite lingering concerns over the market environment and valuations. A higher proportion of investors now plan to speed up or maintain allocations over the next 12 months compared with the same survey results last year (Fig. 1). Nevertheless, fundraising has continued to soften. The number of global private equity funds closed in the second quarter of 2023 was down to 166 funds, or by 53%, compared with the same period last year (Fig. 2). The drop in aggregate capital raised was less pronounced, with a 35% decline to $106.7bn, representing the weakest quarter for fundraising since the second quarter of 2018.
Frank Anduiza of Ultimus LeverPoint discusses how outsourcing can benefit fund managers
In recent years, many alternative fund managers have explored ways of increasing adaptability and enhancing operational productivity. Forward-looking firms have recognized that fund growth leads to increased operational volume, complexity, and operating expenses.
It is crucial that operational processes and functions are customized to the specific needs of the fund manager to help them achieve their operational objectives and priorities. As with most things, one size does not fit all when it comes to outsourcing. A management company’s size, complexity, and in-house resources influence the optimal outsourcing model, from co-sourcing to partial outsourcing to full outsourcing.
At Ultimus LeverPoint, we help our clients achieve their goals through a consultative approach. We discuss the various factors and benefits of outsourcing management company operations and how it can bolster a client’s specific growth initiatives.
Fund managers are increasingly looking to third-party service providers to outsource their management company responsibilities for full scope or ad hoc support. Fund
managers benefit from increased in-house capacity and
productivity by outsourcing all or some of their operations. Below are the various options to consider when outsourcing management company operations.
With the co-sourcing model, service providers work within the management company’s infrastructure, utilizing their technology, processes, and procedures. The main and most important benefit is alleviating or postponing the manager’s need to hire additional employees.
Management companies can choose specific tasks to
outsource, which can reduce the strain on in-house
resources. For instance, outsourcing payroll adds a layer of confidentiality by limiting visibility of firm compensation.
Management companies can choose a turnkey solution
to outsource the full range of operational responsibilities to an external provider. The firms benefit from proven expertise and technology supported by a rigorous controlled environment.
Retain the option to scale up or down
Fund managers who outsource can quickly add or reduce
services as assets under management (AUM) fluctuates. Choosing the right strategic partner for an outsourcing
management company allows for a relationship that will
grow and flex with the fund manager’s needs. Administrators who serve as an extension of the fund manager’s team also become a valued contributor to the business plan.
Choose the right mix of resources at the right time
GPs balance the costs of technology, human capital, and outsourcing as they build their operational infrastructure. What might be considered the ‘right mix’ varies over time based on several variables, including the firm’s lifecycle stage, AUM, and preference for fixed versus variable costs, to name a few.
Replace rote work with value-added activities
Back-office tasks are often repetitive, and the function itself is often perceived as a cost center by fund managers. By outsourcing rote management company functions, which can be automated by a tech-enabled fund administrator, in-house staff can perform higher value and more impactful tasks. GPs become more efficient with business processes, mitigating common risks which enables in-house staff to focus on core competencies while providing their investors with a level of comfort that comes from third-party independence.
Outsource, but ensure internal accountability
Outsourcing should never fully replace internal staffing. GPs require leaders who will monitor and provide oversight for the outsourced work, specifically managing the deliverables and timing of those deliverables.
Frank Anduiza is EVP, Head of Private Fund Sales, at Ultimus LeverPoint. Ultimus LeverPoint is a boutique fund administrator, providing administration services to nearly 220 clients with $225bn under administration, offering a full suite of customizable solutions for all needs. Our team collaborates with CFOs, controllers, and GPs to implement the best operating model for each firm to ensure their specific objectives and priorities are addressed.
In an ever-changing economic environment, private capital markets reflect the impacts of global political changes, government and regulatory scrutiny, technological advances, public opinion, and consumer behavior. Fund managers, investors, and those working with them need to adapt - and fast. Read Preqin's Quarterly Updates for the latest insights and data across private equity, venture capital, private debt, hedge funds, real estate, infrastructure, and natural resources asset classes.