The Need for Speed

How Private Capital back offices need to evolve to capture industry growth

As the private capital industry evolves the need for speed becomes increasingly important. With the rise of institutional investors and the emergence of retail investors in private capital markets, the operational burden associated with them grows. Additionally, the presence of listed GP firms introduces timely reporting obligations inherent to life as a public company. Moreover, the popularity of evergreen structures with open-ended liquidity is on the rise,further emphasizing the necessity for more robust operations.

GPs and their service providers need to collaborate closely to keep pace with the rapidly evolving environment. We are witnessing a shift away from quarterly valuations in private capital toward monthly, weekly, and even daily valuations for certain asset classes such as private debt. Meeting this change necessitates significant optimization of existing operational frameworks.

‍Three of the significant opportunities where newer technologies that can speed up turnaround times by expediting key processes:

1.     Digitizing Investor Onboarding

Historically, investor onboarding has been inefficient and error prone. This has led to friction between the GP and their service provider. If an investor has a poor impression of the service provider, it reflects negatively on the GP. A below-par investor experience can be affected by poor transposition of data from a subscription agreement into the service provider's system. The manual input of key data during a fund close inevitably increases the process's risk, leading to downstream issues driven by poor data quality. Moreover, the manual back-and-forth on document requirements, especially concerning KYC, can frustrate investors, making the process feel endless and bureaucratic.

Utilizing modern technology can address all these issues. Firstly, the investor should receive a tailored investor agreement that meets their specific requirements. These agreements should be accessible online, eliminating transposition errors. The KYC requirements should also be customized, enabling the investor to clearly view tailored criteria, track submitted documents, identify completed tasks, and highlight outstanding items. Enhancing speed and efficiency is achievable by automating the transfer of investor data to downstream systems, enabling faster processing for a larger volume of investors.

2.     Automating Capital Calls and Distributions

In the past, processing capital events has involved a repetitive workflow with multiple stages, often prone to manual errors and heavily reliant on spreadsheets. GP’s often have limited insight into the capital call and distribution process leading to multiple phone calls and emails between the GP and their service provider. This is far too inefficient for present day strategies, resulting in unnecessarily long turnaround times for what should be a relatively quick process.

Modern technology and operating models enable process automation. This streamlined approach empowers GPs to initiate calls via a web portal, triggering a series of automated events in the service provider's workflow. GPs gain visibility into each milestone stage of the process. Investor notices are received directly within the same portal for approval, automatically delivering notices to the investor's data room without manual intervention. Granular insights, including pending investor actions, facilitate direct follow-up by the service provider if needed. This results in reduced turnaround time, fewer errors, and enhanced transparency.

3.     NAV Production and Allocations  

Increased investor demands coupled with additional pressure from regulators for quicker turnaround on filings are creating a bottleneck for administrators. To meet reporting deadlines, GPs require NAVs to be produced more quickly and in a format compatible with their systems. It is critical that administrators can automate NAV production and in-depth investor allocations from end to end to allow them to cut turnaround times and enable them to feed data directly to GP systems.

As cycles speed up, outputs are shared directly through API’s so that all downstream systems are interconnected on a real time basis. This real time alignment between GP and service provider creates significant efficiencies.

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Conclusion

Change is coming quickly as the industry undergoes dramatic growth, and the type of fund structures and investor bases are expanding. Current operating models will not be suitable for future needs.

Let Alchelyst help you plan the next phase of your operational evolution.

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Ian Lynch