As published in Private Debt Investor May 2021
With virtual fundraising, LIBOR transition and rapidly growing data demands from investors, private debt managers are investing to up their game on digital solutions, says Keith Miller, global head of private debt at Sanne Group.
A year ago, funds were probably questioning their infrastructure as a whole. People had huge business continuity plans in place that became irrelevant, and they started to question their technological infrastructure, which naturally raised questions about outsourcing. Instead of hosting a lot of those things, people looked to outsource more, with the knock-on effect that fund administrators are providing more of those services today.
From a business perspective, certainly in the debt world, the pandemic was the first major shock to direct lending since the market took off in Europe after the last financial crisis. That shock triggered a drive for information and data, and that’s where managers look to fund administrators for support. That has driven a focus on enhancing the data experience for LPs and expanding digital ambitions going forward. We are having much more discussion on how data can be presented through our interactive portal, how data can be accessed in real time and digging further into data at the asset level; all of those conversations have accelerated.
The result is an increasing push towards fund administrators who can provide such platforms.
The investor experience has been thrust into the limelight in multiple ways. That covers not just the necessity of fundraising activities being done virtually – which has certainly made a significant difference to the way the world operates – but also more interactive, online collaboration and meeting tools to facilitate virtual AGMs, roadshows and CRM platforms to engage with investors. A lot of that is here to stay.
The knock-on effect is that managers are now looking at some of the old data rooms and processes that were less interactive and working to develop those. The investor experience around fundraising and onboarding into the fund has been a focus, having automation and digitisation through that process, whether that’s about viewing investments or how they see data and access it real-time. Managers are thinking about the processes their investors see every day, like redemptions and capital calls, and looking to enhance those.
Everyone wants the same information and they want more information, with investors calling for and more up to-date insight into the assets. To be able to provide something that’s readily accessible to both LPs and GPs is hugely valuable.
This is something I spend a lot of time thinking about. If you look at the loan market as a whole, technology solutions have always been centred around syndicated activities, trading activities for CLO managers and bringing settlement times down. Some vendors have provided good solutions, but the problem is that those things require huge market take-up to be useful. You see some initiatives in the market stall because there are competing providers, such as reconciliation platforms.
We’ve now seen a shift in where the attention of the debt market is focused, with conversations about innovation now focused on documentation, with law firms investing heavily in artificial intelligence to automate loan documentation processes and different lenders using enhanced functionality to review documentation. That’s been a real shift recently and is going to be the focus going forward.
At the same time, this year we are going to see an enormous amount of work going into LIBOR transition, with lots of documentation requiring amendment, and that makes document automation even more powerful. The other piece for private debt is integrated investor portals, where you can store documents and data, view more detailed performance analysis, and upload a lot more qualitative content, like video briefings. That’s where we are seeing real investment and innovation today.
Ultimately, our desire as a fund administrator is for GPs to focus on what they are good at and where they add value, which is fundraising, investing and portfolio management. There are certain economies of scale with regards to middle office activities that fund administrators have always been able to utilise to provide efficiencies. This drive into more technology is only going to increase the value that fund administrators can offer, improving the end investor experience through good portals, good communications, easier workflows and onboarding and greater access to data.
It is difficult for a manager to replicate that in the way that they might have done in-house in the past. Robust, secure, connected and scalable technology is key. It is easy to think of administration as a technology solution, but it is more than that. It’s incredibly important for us to continue to provide that client experience, which remains our priority and our differentiator. Fund administration remains a people business, so it is key for us to have the right skillsets and experience, whether in the accounting team, reporting, or on the regulatory services that we provide.
The key skillsets of product knowledge, strong accountancy backgrounds and good regulatory knowledge will not change. But while the fundamentals will not shift, there is no doubt we will be bringing in more people that know the technology environment.
The investor experience has been thrust into the limelight in multiple ways.”
Portals will be how communication happens, and there will be more automation around notices, payments and viewing of the data. But there will also be some differentiation between funds and the services we offer them. For smaller funds, we could be providing a full solution, hosting everything and tailoring a whole platform around their requirements. We are at a point where fundraising, investing and everything else can be easily supported from a technology perspective and we can offer all their infrastructure.
For larger funds it will be different. You are always going to have large fund managers who host things themselves and have their own infrastructure that we plug into. There we will have to interact with multiple systems and seamlessly integrate our platform into our clients’ systems to enhance straight through processing, and aid transparency of data through the portfolio.