How the back-office is helping managers transform their fundraising potential

Following the outset of the pandemic, private equity fundraising competition has reached a new level, thrusting the back-office into a pivotal role. Anne Anquillare, head of US fund services at PEF Services, a CSC company, discusses what GPs are doing to meet evolving investor expectations, the importance of changing minds and outlines a roadmap to back-office readiness.
By Jon Watkins

Global Custodian: Investor expectations have evolved throughout this time – and arguably risen – so with the trend set to continue as we manoeuvre our way back to normality, what do GPs need to do to meet and exceed these expectations?

Anne Anquillare: The market has really exploded for private capital fund managers. There’s a lot of capital available to make use of their unique talents and space within the asset allocation mix. But like many other things in business – especially with the pandemic – more of investors’ decisions need to be data driven as opposed to speed dating at a capital connection events.

So I see the rise in the use of databases during the initial fundraising and I see the rise of investor expectations with regards to what kind of data they receive, not just while they’re in the fundraising process, but then ongoing. Because you can’t treat someone one way while you’re fundraising and then all of a sudden differently. There’s no room for ‘great, we have your commitment, now all you get is the standard PDFs’.

The expectation of access to data has really risen in addition to the investors’ focus on risk mitigation and the ability for the operations to scale. With regards to risk mitigation, not only has the initial operating due diligence exercise become critically important with the cyber threats, but also the risks associated with the operations of the general partner. Do they have the right vendor ecosystem in order to scale? Have they selected the right partners that can grow with them? The whole focus on all things that used to be relegated to the “back-office”, has really become front and centre for the entire time an investor is with a firm, not only during fundraising.

GC: How do you see the back-office helping to change mindsets when it comes to fundraising?

AA: The entire general partner organisation has to have a mindset that fundraising is not a one and done activity. It is a constant effort by the entire firm, the front-office, back-office and middle-office, if you have one.

Staying in tune with the investor expectations is critical. By doing things like surveying your existing investors and understanding what they’re seeing in the market, general partners have a great opportunity to understand how the market and investor expectations are moving, while they’re not actively fundraising. And that gives them the opportunity to enhance their back-office, again through either the vendor ecosystem or through just adding additional reporting. That way by the time they’re ready to start fundraising, they’re already performing at that higher mark for their investors and their prospective investors.

GC: What role do you see technology playing to enhance fund services and support fundraising, especially in the current environment?

AA: It has a critical role, but it does not surpass great service. At the end of the day, the GPs are in a people business. They are offering a professional service, so it is all about the people. They have to have the right teams in place. I know this for myself for my own team – if we didn’t have the right technology platform so that our client services teams can do the work for their clients, they can burn out, they can get frustrated and they’re not really providing the level of service needed to stay competitive.

The GPs are in a very similar circumstance. They have to find the right technology platforms. Now that doesn’t mean that they have to build everything themselves, they shouldn’t, especially with regards to the back-office. That’s not their core competency.. Investors still are relying heavily on the GPs for investment performance and how they’re managing, monitoring and realising their portfolio. But again, if they don’t have the right technology platform, they’ll burn out their people, they will not put their best foot forward to their investors, and it will be very difficult for them to scale.

One thing that we’re seeing a lot of is the advent of standards within our industry between ILPA and the CFA Institute. There is a focus on how we can standardise the data that we’re collecting. You can do a lot of great things on customised reporting, but it’s very challenging when you’re customising data collection. So, I think as an industry we’re coalescing on the data standards and then we can service investors whether they’re the institutional investors, the family office, the semi-institutional, the high net worth, the wealth managers. That can all be customised, but really what must be standardised is what data we are collecting in the first place. Then we can apply technology to collect that data more efficiently and report on it more effectively.

GC: Let’s bring this back around to the initial question, talking about how the back-office is helping managers transform their fundraising potential: How do you see the road map looking to back-office readiness for this?

AA: Your current road map starts with your current position. The first thing a general partner needs to do is take a step back and really evaluate what are their current skills and talents, who are the people and what are they providing today for their investors? And then again, surveying existing investors, having conversations with placement agents, having conversations with your vendors, your fund formation attorneys, your fund administrators and your auditors. Where do they need to get to, two years down the road when they start fund raising? And then being able to prioritise those activities and make sure that they’re assigning the correct resources in order to get there.