Fund admin mega-deals
There has been a number of recent mega deals as well as rumors in the PE fund admin market, including Warburg Pincus taking a minority stake in Aztec, Cinven investing in Alter Domus, and Astorg weighing putting IQ-EQ into play.
What are the consequences of major players transitioning from being the pioneering drivers of the PE fund admin market to becoming part of an institutional-level landscape?
The PE fund admin development cycle
To understand the consequences of the 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 general groups: those owned by US or European banking groups (such as State Street, BNY Mellon, SocGen, BBH, BP2S, SEI, Citi, NT, et al), and the independents, including those subject to mega-deals, who distinguish themselves from the bank-owned players by being more active from an M&A perspective.
In the last decade, the PE fund admin space has seen many bigger players acquiring the smaller players– a cycle which sees the experts come back into the market to relaunch the next phase of providers.
But, in light of the mega-deals, is that self-fulfilling cycle going to continue?
Market demand challenges
There are significant challenges rooted in the private markets fund admin market, no matter what the PE mega-deal makers may have in mind for their strategic way forward. Automation and scalability are difficult, especially due to the:
- Complexity of funds
- Differences across asset classes
- 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 mega-deal contenders, do have a track record of tackling challenges of these sizes.
Comparison to mainstream open-ended market evolution
We might be able to learn some lessons by comparing the current evolution of the private markets fund admin space to the evolution of open-ended fund admins 15-20 years ago.
The open-ended fund admin space experienced a similar trend to what’s happening in its private markets equivalent now: new fund admin start-ups jumping on the bandwagon of 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, which often simply came down to whichever large outsourced 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. The current trend of new fund admin start-ups being acquired by bigger players could come to an end, and the biggest players could finally achieve an industrial level of automation and scalability. This could result in private markets funds managers having a ‘no brainer’ decision to outsource to one of the full-bandwidth providers instead of smaller players.
As with the open-ended fund admin industry, the longer-term consequences of this would likely be a consolidation of the associated private markets 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 already enabling leading fund admins such as Admina Fund Services and Alchelyst to deliver to their clients at the highest level through technology.
See how LemonEdge can drive success for your fund administration.
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