Why Today's Market Trends Require Private Equity Fund Administration

The financial crisis of 2008 showed investors the unpredictable nature of the global market. As a result, today’s financial environment has become stricter and more demanding, requiring firms to focus on accurate reporting, delivering greater transparency and tighter accounting controls. In sum, an efficient private equity fund administration.

While other firms choose to stick with an in-house staff for this responsibility, recent reports show that more private equity managers now embrace outsourcing. “The shift to outsourcing is also being driven by more complicated investment strategies, higher flows into private equity, the need among asset owners for more accurate and timely valuation, and more domestic and international regulations,” shares asset servicing and trading expert Rick Baert of Pensions & Investments.

What actually makes these challenges tougher and tougher each year is the perpetually changing landscape of the global financial market. The unexpected swings and hurdles along the way require not only proficient administration of funds, but also proper execution of strategies that can mitigate risks and yield higher return on investment.

A recent example of this is the slump in oil prices that has spurred activity among private equity investors across the globe. According to Arno Schuetze and Freya Berry of Reuters, “Global crude prices almost halved to around US$60 a barrel in the past 12 months, slashing company values, forcing budget cuts and putting more than US$150-billion of oil and gas exploration projects in jeopardy this year.”

While some investors decide to take a wait-and-see stance on this investment opportunity, majority of them are more bullish. What if oil prices fail to rebound for years? Is that even possible? “In the long-term the equilibrium point of oil prices is in the US$70-85 range. The question is when is it going to get there, are we talking 9 months or 30 months? That is where the risk lies,” says Warburg Pincus’ co-CEO Joseph Landy.

With the risky and volatile nature of these assets, the critical role of private equity fund administration comes to rescue. Through global operating procedures, financial accounting and shareholder reporter, fund managers allow investors to monitor and weigh risks, and come up with smart decisions based on the provided information. Fund managers also save firm administrators from all the demanding aspects of tax services, fund regulation including AIFMD and FATCA compliance.

Going back to Baert’s analysis, the positive impact of fund administrators to private equity firms has become more evident than ever before. According to the author, latest research from eVestment points out that private equity fund assets under administration (AUA) among 28 firms surveyed demonstrated a 15.27% increase in the second half of 2013, to a total of $879 billion.

To help you reach your business objectives, look for a private equity fund administration firm that knows when and where to apply the industry’s best practices in tested, yet creative ways.