Fund admin mega-deals
There has been a spate of recent actual or mooted mega deals in the PE fund admin market, including that of Warburg Pincus taking a minority stake in Aztec, Cinven investing in Alter Domus, and Astorg weighing putting IQ-EQ into play.
What then are the consequences of this class of major players transitioning from being the pioneering drivers of the PE fund admin market (as it came into existence then flourished), to becoming part of an institutional-level landscape?
The PE fund admin development cycle
To understand the consequences of the next-level evolution of the PE fund admin market we need to understand how PE fund admins have developed to date. Broadly-speaking, PE fund admins can be split into two broad groups: those owned by US or European banking groups of which there are plenty (such as State Street, BNY Mellon, SocGen, BBH, BP2S, SEI, Citi, NT, et al), or the independents of which there are also plenty, including those subject to mega-deals, who distinguish themselves from the bank-owned players by being more active from an M&A perspective.
It is the latter group, who best characterizes the PE fund admin development life-cycle, which in recent years has been a cottage industry of the bigger players acquiring the smaller players– a cycle which has been driving the launch of a seemingly endless pipeline of start-up PE fund admins with an exit strategy to be acquired sooner than later.
But, in light of the mega-deals, is that self-fulfilling cycle going to continue?
Market demand challenges
Whatever the PE mega-deal makers may have in mind for their strategic way forward, there is no getting away from the challenges inherent in the PE market for fund admins, namely the characteristics of the administration/accounting processes that make automation or scalability challenging, in particular the private markets challenges associated with:
- Complexity of funds
- Differences across asset classes
- Low volume of investors
- Multi-GAAP accounting
- The fragmented digitalised/reporting infrastructure
- Too many Excel workarounds
However, players with the magnitude of resources, combined with the level of ambition of the current round of mega-deal contenders, do have a track record of tackling challenges of these magnitudes.
Comparison to mainstream open-ended market evolution
Where lessons might be learned is to compare this potential PE fund admin evolutionary pivot point with that of the equivalent evolution realized by the mainstream retail/open-ended fund admin industry 15-20 years ago.
For the mainstream funds industry there was originally also a cottage industry of new start-ups jumping on the bandwagon of mainstream asset managers outsourcing their fund admin processes, then being acquired along the way. However, there came a point at which the mega-deal players in that space were so sophisticated, with the level of market infrastructure (especially in the US and Europe) so comprehensive, that the party came to an end, with new entrants no longer winning business or being able to sell themselves to the big players. Instead, the biggest players had industrialised themselves to such an extent that asset managers typically had a ‘no brainer’ decision to make to outsource, which often simply came down to whichever large outsource service provider could come up with the best commercial/services package.
The consequences for the PE fund admin industry
The consequences for the PE fund admin industry could be similar, i.e. the current cycle of new PE fund admin start-ups selling to bigger players comes to an end, with instead the biggest players finally achieving an industrial level of PE fund admin automation/scalability, such that asset managers in the PE funds market will also have a ‘no brainer’ decision to make to outsource to one of the full-bandwidth providers.
As with the mainstream fund admin industry, the longer-term consequences of such a next level of evolution will likely be a maturing/consolidation of the associated PE fund admin infrastructure across the value chain: from pricing to valuations to reporting to the associated supporting systems.
LemonEdge has been purpose-built to specifically address these challenges
The big winners of this consolidation will be determined by how well fund admins implement cutting-edge technology in order to optimize operations.
LemonEdge is an example of a next-gen system which can already tackle the challenges the mega-deal makers need to address, including but not limited to:
Complexity of funds
With LemonEdge, fund administrators can effectively manage any fund with any level of complexity, including any number of entities of any type, in any jurisdiction, with any level of allocation model, across any number of parallel or split funds.
Differences across asset classes
Fund administrators can manage their clients across private markets asset classes on a single platform, regardless of jurisdiction or accounting methodology.
Multi-GAAP accounting
Administrators can simultaneously record transactions across multiple accounting methodologies, while streamlining processes such as consolidations and look-throughs for any complexity of fund structure.
The fragmented reporting infrastructure
With LemonEdge, fund administrators can extract and transform their data exactly the way they want to present it to stakeholders, and build pixel-perfect, professional reports using our highly customisable reporting engine. They can then share all reports, statements, fund notices, and dashboards via a secure portal, using custom access levels for each stakeholder type.
Too many Excel workarounds
Excel will never go away, so embracing it is key. With LemonEdge, admins can embed their offline Excel workbooks into the access-rights controlled LemonEdge system to ensure all data, wherever it resides, is always synchronized and reconciled.
If you would like to know more, or discuss any of the above, please contact sales@lemonedge.com.
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