News

Park Square Capital adopts Alter Domus’ Credit.OS

“The introduction of Credit.OS has dramatically accelerated internal reporting processes and enabled the investment team to spend their time critically evaluating performance, rather than on repetitive manual data entry.”

– Matthew Maguire, CFO, Park Square Capital


technology man holding iPad showing data scaled

The Business Challenge

The continued expansion of Park Square Capital‘s portfolio to more than 100 companies was the catalyst for the firm to seek a software solution to drive efficiencies in data ingestion and reporting at the asset level. While Park Square has always had a rigorous focus on active portfolio management, the existing operational model could be laborious, due to manual inputs of hundreds of data points into its portfolio management framework, creating an increased workload of lower-value tasks.

The deal team was spending valuable time on laborious manual data entry and reporting, when they could instead have been focusing on the underlying drivers of company performance and deeper credit analysis. In addition, the lack of data model standardization impeded some deal team synergies and a more enterprise-wide view on credit, and was at odds with Park Square’s best-in-class data strategy.  

How the adoption of Alter Domus’ Credit.OS transformed Park Square Capital’s private credit data management capabilities 

Alter Domus’ longstanding position in the debt capital markets, coupled with our strategic direction of technology investment, inspired us to focus on three key areas in developing our end-to-end Credit Operating System (Credit.OS): the accurate extraction and digitization of corporate financial data, the efficient and timely calculation of covenants, and the enhanced ongoing monitoring of assets within a portfolio.

The data extraction function of Credit.OS was specifically designed to help resolve the exact challenges Park Square had been facing. Developed with automation and machine learning at its core, our framework digitizes, normalizes, and aggregates data, and has been trained on millions of corporate financial documents. Data checks and reconciliations are made through proprietary QA review, backed by our in-house team of data scientists and credit experts.

As Park Square explored the utilization of the Credit.OS with AD, the following feature-functions stood out:

  1. Robust, accurate, timely, and transparent data collection, extraction, and normalization
  2. Operationally sound, programmatic mapping of data to fully functional Excel-based models
  3. Enablement of standardization and streamlining across the Park Square portfolio
  4. Agility to feed data into Park Square’s internal and third-party downstream systems

The impact on Park Square Capital

  • Minimization of manual data entry and more centralized tracking of hundreds of financial datapoints 
  • The enablement of one standardized reporting template across 100+ portfolio companies, all with slightly different report formats
  • A dramatic reduction in time spent on valuation audit queries due to the systemization of reporting and data
  • Improved oversight of key reporting deadlines due to improvements of workflow efficiency

Key contacts

Image of Eric Tannenbaum

Eric Tannenbaum

United States

Head of Sales for Data & Analytics

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News

Alter Domus rises again in PwC’s 2024 Observatory for Management Companies Barometer

The observatory uses figures from a sample of 125 Luxembourg management companies to reveal key trends in the industry.


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We’re proud to share that we’ve been listed in PwC’s Observatory for Management Companies 2024 Barometer and that we’ve come out even better than before. This year we’ve seen another jump in our rankings with the highest AUM progression (25%) in both Top 10 Luxembourg AIFMs and Top 10 Third Party ManCos.

We’re particularly pleased that to be listed as the only company with true Luxembourgish origins.

Alter Domus is proud to have moved up in the following rankings:

Top 10 Luxembourg AIFMs as of 31/12/2023:

Moving from 7th to 6th  with the highest AUM progression of 25%

Top 10 Third Party ManCos as of 31/12/2023:

Moving from 8th to 7th also with the highest AUM progression of 25%

A rise of 3 places since 2021!

With 5, 000 professionals in 23 jurisdictions speaking 51 languages and having invested €103m in tech development and M&A, Alter Domus are unrivalled in our ability to provide end-to-end support for clients launching, managing and administrating regulated and unregulated investment vehicles.  We offer our third-party AIFM Services in both Luxembourg and Ireland. To find out more about how we can support you in the alternatives space, please get in touch.

Key contacts

Alain Delobbe

Alain Delobbe

Luxembourg

Head of Management Company Luxembourg

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Insight

A supportive function

Chief Commercial Officer, Alex Traub spoke to The Drawdown this month about the value of bespoke investor administrative operations as the private equity industry grows and matures, and in response to increased operational, regulatory and reporting demands. For those with leaner back-office teams, the twin challenges of global increased compliance and reporting requirements, alongside increasingly diverse investor bases are applying a further strain.

At Alter Domus, we specialize in best of class fund accounting, reporting, regulatory expertise, and technology platforms. By working with us, asset managers can reduce their burden while ensuring their obligations are addressed efficiently and effectively. Reach out to Alex to hear more.


technology data on screen pencil in hand scaled

As the private equity industry has grown and matured, so have the operational, regulatory and reporting demands on the asset class. This has been particularly challenging for those managers with leaner back-office teams, who have had to focus resources on the core business of finding and backing great businesses and management teams. This model, which has served managers so well for so long, is now pushing against its limits.

On the regulatory front, US managers are bracing for the implementation of new SEC rules that will oblige managers to produce audit and quarterly performance reports and provide more detailed disclosure on fund expenses. In Europe, meanwhile, managers are readying for the rollout of the next version of the AIFMD II in 2026, which will add to compliance disclosure and reporting requirements. In addition to a higher volume of regulatory disclosure, managers are also navigating the complexities of working with an increasingly international and diverse investor base and the accompanying increase in requests for bespoke, tailored investor reporting. For managers with the scale to invest in large back-office infrastructure adapting to higher disclosure and reporting volumes has been manageable. For other managers, however, existing operating models simply cannot ramp in the same way.

Fund administrators: key partners for long-term success
As private equity evolves, regulation increases and investors become more sophisticated, certain fund services providers are emerging as key partners in the midmarket and will have a crucial role to play in the sector’s long-term success. Rather than facing a scenario where €10-15m of capital expenditure has to be ploughed into upgrading the back-office capacity – at the expense of the core front-office functions of deal sourcing and execution – smaller managers can turn to fund administration partners to support their back-office obligations and free-up resources to focus on transactions and value creation.


Fund administrators, working with hundreds of managers across multiple jurisdictions, have the economies of scale and operational synergies to invest in fund accounting and reporting, regulatory expertise and technology platforms at levels that would be impossible for a single manager trying to carry the load in isolation. Outsourcing back-office functions to regulatory and reporting experts, who have the technology and human capital to handle more complex and intense workflows, gives managers the comfort that their obligations to investors and regulators are being addressed by expert service providers that know the market and have the muscle to scale-up capacity to meet intensifying back-office demands.

Enhancing technology capability is an example of how fund administrators are adding value for clients. In addition to opening access to best-of-breed industry software offerings and realistic price points, fund services partners also have the size and resources to build and maintain proprietary technology that can help clients to operate more efficiently. Alter Domus’ Digital Workflows Application, which uses AI and automation technology to handle the increasing volume and complexity of reporting and transaction flow, for example, is available to clients and can help managers to secure significant operational efficiencies.

Opportunities emerge from challenges
Partnering with a fund services provider to boost back-office bandwidth is not only a defensive play for managers. Harnessing a fund administrator’s service capability can help to unlock new sources of liquidity and new investor bases.


With liquidity for example, a slowdown in exit volumes in the face of higher interest rates has seen managers explore continuation fund vehicles as an alternative exit route to secondary buyouts, as well as trade sales and IPOs, to realize distributions for investors. Fund administrators can help managers to undertake continuation fund deals more frequently and in higher volumes. In addition to complex deal execution and organization, continuation fund vehicles also require ongoing administration and reporting.

Fund administrators can scale-up support to assist managers, as continuation fund deals are secured without placing the additional demand of back-offices. The back-office heft of a fund services partner also opens up pathways into non-institutional investor bases. The administrative demands of raising capital from individual investors – typically through private wealth feeder funds, or semi-liquid funds and open-ended structures, such as Europe’s emerging ELTIF regime – can be a non-starter for managers with small back-office teams. These structures require more regular reporting of portfolio NAV and the capacity to provide liquidity for capped redemptions during fixed windows. Client onboarding and compliance volumes also ramp up significantly when capital is raised from large numbers of non-institutional clients rather than the limited groups of institutional investors that are the norm in closed-ended private equity funds.


Managers can turn to fund administrators that are already operating at scale to digest the additional know-your-client, cashflow monitoring and reporting workflows that come with raising capital from
non-institutional channels.


Partners for the long-term
Shifts in what investors and regulators expect from private equity managers, the types of investors
managers are raising capital from, and the exit pathways available in a more sophisticated market, are reshaping how the asset class is thinking about its back-office requirements. This transformation is particularly challenging for smaller players, but through long-term partnerships with fund administration experts, managers can share the administrative load of operating in a more mature industry and stay focused on what they do best.

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Navigating retailization’s back-office challenges

Chief Operating Officer, Mike Janiszewski spoke to PEI Fund Services report about the value of outsourcing administrative functions to respond to the increased market demand from individual investors. Get in touch to partner with a proven third-party provider to harness this potential.


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Mike Janiszewski, Chief Operating Officer, spoke to PEI Fund Services report about the value of outsourcing administrative functions to respond to the increased market demand from individual investors. With about half of global assets under management (AUM) held by individuals, private fund managers are keen to tap into this vast potential. Large asset managers, like Blackstone, have ambitious goals for increasing their retail capital offer. However, accommodating individual investors in alternatives, presents significant complexity- complicated structures, dealing with varying regulations, individual tax burdens and increasing back-office administration.

Mike opined that “Taking on investment from private wealth investors will require a step-change in middle- and back-office infrastructure” Private markets have responded to this already and multiple investment structures are being adopted to accommodate the differing needs of individual investors, as well as new distribution channels and digital platforms. At AD, we have been specializing in this for the past 20 years; delivering for our clients via a combination of jurisdictional, technological and administrative expertise.

Ultimately, leveraging technology for automation and data streamlining must come alongside partnership with third-party providers who can harness new tools for great success. Reach out to to find out more.

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Keynote interview

How to drive transformative artificial intelligence in fund services

Demetry Zilberg, Chief Technology Officer was interviewed in PDI’s Tech, AI & Fund Services edition​ about the Alter Domus technology journey, as well as artificial intelligence and its impact on private credit. He highlights the importance of managing the gap between hype and practical business applications, prioritizing opportunities and mitigating risks.


technology data on boardroom screen plus people in meeting

Interview

Q You have recently joined Alter Domus as chief technology officer. What background do you bring to the role, and how is that perspective useful for Alter Domus and its clients?

Most recently, I was a chief technology officer at Wells Fargo bank. Before that I was the CTO of the financial data and software company FactSet, which was my final role there over a 20-year period. In these positions I’ve been in­volved with a vast array of initiatives, from developing mobile capabilities and addressing challenges such as iden­tity protection and fraud prevention to developing and executing artificial in­telligence strategies and implementing generative AI.

Alter Domus is my first experience in a private equity-owned company. The mandate of the senior team here is clear: how do we use technology to make our services more efficient, more intuitive, and more impactful for our clients?

At Alter Domus, my team owns all the technology and app development efforts for the business, as well as the data analytics and engineering and some of the product strategy from a technology perspective. The goal is to help continue to scale an already rap­idly growing business and drive sever­al transformative initiatives, with one area of focus being the data and ana­lytics business, where we see a lot of potential.

Q What is your perspective on AI and its adoption in private markets?

AI has been fundamental to many com­panies and products for a number of years. Companies such as Tesla have been working on self-driving vehicles for more than 10 years, and those are in­herently AI-enabled. So, AI is not new.

What has changed is that last year saw probably one of the most suc­cessful marketing campaigns ever launched when Open AI unveiled its initial version of ChatGPT. We all started talking about generative AI and what ChatGPT would mean for us. Adoption of that tool went from zero to 100 million active users in just two months, making it the fastest growing consumer application in history. That showed the art of the possible with generative AI, and immediately drove that conversation in boardrooms.

Right now, what is important for business is to thoughtfully manage the gap between AI hype and practical business applications. Businesses need to prioritize opportunities in order of obtainability and then manage commu­nications with stakeholders to create meaningful outcomes. Too often, com­panies become focused on what’s new, rather than what’s best, or more to the point in Alter Domus’s case, what’s best for our customers.

Q What steps are service providers like Alter Domus taking in AI?

We believe that before any concrete actions are taken in AI development, governance issues have to be addressed. Protecting both our clients’ data and business at large as well as our own is of the utmost importance.

It’s best practice to have a formal and mature intake process for AI ap­plications and a multidisciplinary panel that considers and prioritizes oppor­tunities for the business, as well as any implementation guardrails and cy­ber-security considerations. That panel should include representatives of tech­nology, business, regulatory compliance and HR. Putting that disciplined collec­tive effort into mitigating risks like data leaks or data breaches is essential.

The other element of this is the technology itself. The way a company like Alter Domus approaches that is with a platform construct. Instead of focusing on underlying infrastructure (such as GPUs), we chose to partner with cloud providers that offer robust ‘out of the box’ solutions that enable us to experiment, validate, and deploy AI solutions with little friction. Leverag­ing our partners that have robust end-to-end services that aggregate versus trained or partially trained algorithms is a smarter method for us.

For example, we have a relationship set up with AWS using some of their services, such as SageMaker and Bed­rock, which deliver pre-packaged plat­forms of large language models. That is central to our strategy because we get immediate access to enhanced technol­ogy and capabilities.

One of the ways we approach AI gov­ernance is to consider use cases in three buckets: ready-made solutions we can buy (such as co-pilots that can be easily integrated into our workspace produc­tivity tools); capabilities and tools, built by Alter Domus, that enhance the effi­cacy of our employees’ service delivery to clients; and AI capabilities embedded into products, delivering sophisticated analytical capabilities and meaningful insights to our clients.

Q Why is private credit a particular area of focus, and what advances are being made there?

We feel the private credit space really lends itself to the last two of those three categories. There are tens of millions of unstructured documents and data sources in private credit, with many in PDF, Excel or even fax format.

We have a product called Digitize that processes 30 million documents, extracting, classifying, and incorporat­ing content into client-facing products. Then it becomes easier to use genera­tive AI and the analysis of that data re­quires less human input, leading to bet­ter outcomes, faster turnaround times and cost savings for clients.

Q Is AI replacing humans in the use cases you see?

I think for the foreseeable future, AI is about creating substantially better tools for humans to use, but we still need hu­mans. Instead of using manual tools to deliver outputs, you can speed up processes and get more reliable results using AI, and that is more rewarding work for the humans involved.

For now, we still need humans to oversee those processes, to check that AI is working properly, which means there is an upskilling opportunity and AI is simply taking away the more mundane elements of tasks. In the longer-term, AI will free our teams to focus on more strategic areas of work.

Q What do you expect to be the most exciting developments in this area in the near future?

We are focused on building out our data and analytics business as a com­prehensive data platform making use of AI capabilities. That will take data from various siloes and make it available in a very secure and compliant way for our clients. We plan to employ AI to enable the data platform to deliver actionable insights and new analytical capabilities for our clients.

The key element in all of this is that you have to ‘feed the machine’: AI needs data to really learn and operate in the most effective way, and we sit on a treasure trove of data. We make cer­tain to prioritize the use cases that will have a beneficial impact on our clients. We want to give them more visibility into their funds than they have ever had before, allowing them to make faster and better formed decisions.

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Keynote interview

Codifying best practice

Tim Toska and Emily Ergang Pappas were interviewed in June’s Buyouts Secondaries Report. They outlined how the SEC private fund rules will provide a regulatory framework around GP-led secondaries, ultimately supporting their continued growth.


Corporate Financial Data

Interview

Q To what extent do the SEC’s private fund rules impact the secondaries industry and how have these changes

been received?

Tim Toska: The US Securities and Exchange Commission’s new private fund adviser rules are certainly far reaching and there are significant changes involved. But, as it relates to the secondaries industry, it is the mandatory requirement for a fairness opinion or valuation in every GP-led secondaries deal that is the most directly relevant. There are also new disclosure requirements around material business relationships and activities, which must be formally documented and posted to a portal. In many instances, both are already happening, but the rules mean there is now a regulatory requirement to take these extra steps in what might well be a time sensitive transaction. That can always be a cause for concern. Managers want to be able to proceed with  deals in as frictionless a way as possible. That said, compared to some other aspects of the rules, these provisions are unlikely to keep many awake at night.

Q Could a clearer regulatory framework around GP-led  secondaries be welcomed, particularly when it comes to ensuring LPs are comfortable with these deals?

TT: Absolutely. This is a fast-growing market, and it has been exciting to see GP-led secondaries emerge as a valid avenue for generating liquidity, alongside traditional M&A and IPOs. But there are clearly some inherent conflicts of interest that need to be carefully managed because the last thing anyone wants is for questions to be asked in hindsight, should a deal not turn out as planned. These are not arms length transactions and so they lend themselves to being second guessed. Increasing the regulatory framework helps eliminate any of that doubt and so from the perspective of the ongoing growth and maturity of the sector, I think it is largely to be welcomed.

Emily Ergang Pappas: It also goes long way towards ensuring all investors are in the same situation. Yes, there were many funds that were already including fairness opinions in their deals and going the extra mile in terms of transparency, but now investors in every fund will be afforded that same level of protection from potential conflicts of interest. The codification of best practice means all investors are now in the same boat.

Q What modifications have we seen since the initial rules were proposed and where are we now in terms of when the rules will be enacted?

EEP: We are in a unique position as fund administrators in that these rules don’t technically apply to us, but they will apply to most of our clients and will affect the services we provide. We are therefore keeping a close eye on how things develop. There are a number of lawsuits that are ongoing, and no-one is entirely sure what the timelines are likely to be, but we are certainly paying close attention. I would agree with Tim though that this rule is not as controversial as some of the others. We have been heavily focused on the quarterly statement rule, for example, because there is a lack of clarity there and because it impacts our role as administrators particularly. There have already been some modifications made between the proposed rules and final rules when it comes to secondaries, with greater flexibility to choose between either a fairness opinion or a valuation. Beyond that we are in a wait and watch holding pattern, considering what the eventual outcomes are going to mean for clients.

Q Given the GP-led market’s growth, is it reasonable to expect it will be subject to greater regulatory scrutiny going forward, beyond these specific rules?

EEP: The short answer is yes, absolutely. Anytime something grows in size and popularity to this extent, particularly when it involves readily identifiable conflicts of interest, it is inevitable that the SEC and other regulators around the world are going to want to put some parameters in place to ensure investors are adequately protected.

Q Against this regulatory backdrop, how are you seeing the GP-led secondaries market evolve?

TT: I would say that the GP-led secondaries market has now reached a stage in its maturation journey where it sits side by side with other strategies. Certainly, in terms of deal volumes, GP-leds have been at or about 50 percent of the overall secondaries market for the past few years. In fact, there has been insufficient capital available to meet demand from GPs, who now view this as a viable exit route and means to generate liquidity in an environment where liquidity has been in short supply.

Q Will that growth trajectory continue unabated as and when M&A markets return?

TT: I believe that it will. There will always be reasons for GPs to pursue this type of deal, regardless of what is happening in the broader macroeconomic environment. It is true that a revival in M&A will lessen the need for GPs to turn to continuation vehicles to generate distributions for investors. However, there will always be sectors, or segments of the market, that are facing structural or economic hardships and where secondaries capital is required.

Furthermore, there will always be situations where the timing just isn’t right for a GP to exit, despite the fact it is running up against the limits of a fund’s life. Due to the intense growth in volume and awareness over the past few years, GPs know these GP-led deals are something they will always have in their back pocket.

Q The GP-led market is widely believed to be one of the most undercapitalized corners of private markets. How do you see the buyside evolving going forward?

TT: The secondaries market, and GP-led secondaries in particular, are undercapitalized relative to the supply of transactions in the market. But I don’t necessarily view that as a negative. In fact, in many ways it can be viewed as a positive, because it ensures buyers are able to originate and diligence opportunities in a disciplined manner rather than feeling any pressure to put money to work. Of course, we don’t want to see that undercapitalization continue forever. But it is no bad thing for supply to outpace demand as the asset class matures. That will help ensure everyone concerned has positive experiences, including LPs that decide to roll and the new investors that come in. The more of these win-win situations that we see come to fruition, ultimately leading to successful realizations over time, the better it is for the asset class in the long term.

Key contacts

Tim Toska

Tim Toska

United States

Global Sector Head, Private Equity

Image of Emily Erang Pappas

Emily Ergang Pappas

United States

Head of Legal, North America

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Leveraging the power of technology

Tim Toska was recently featured in June’s PEI Fund Services Report where he discussed how private equity firms are increasingly turning to tech solutions to support everything from investor onboarding to portfolio management.


technology data on boardroom screen plus people in meeting

Interview

Q How far has private equity come in terms of its willingness to leverage technology to support middle-and back-office functions?

The industry has certainly come a long way, particularly over the past few years. The ability to leverage technol­ogy to support operations has moved from a nice-to-have to a must-have. A lot of that movement has been driven by investors in terms of the timeliness and granularity of the data that they are demanding, and that has placed an unprecedented emphasis on efficiency. Technology has inevitably been part of the solution, but this isn’t something that investors have foisted onto man­agers. It doesn’t work that way – it is something that needs to be embraced and we have undoubtedly seen a marked shift in managers’ willingness to do just that.

Q How is technology being used in the investor onboarding process?

Onboarding is a fantastic use case for technology because it is an area in which the private markets desperately need to become more efficient. Historically, onboarding has involved a huge amount of back and forth across paper trails, e-mail communication and calls. The ability to digitalise subscription docs and streamline AML and KYC processes using tech tools that weren’t available just a few short years ago, is proving transformative for the industry.

It is also incredible to see how far we have come in terms of LP portal devel­opment within a relatively short period of time. Just 15 years ago – which isn’t all that long ago, in the grand scheme of things – investors were receiving call notices by fax machine or even mail.

These investor portals have greatly improved, and continue to greatly im­prove, communication with LPs, while also creating significant cost and time efficiencies both for the manager and the underlying investor.

Q In light of the US Securities and Exchange Commission’s new private fund rules, how important is technology going to be in meeting regulatory demands?

Reporting requirements are intensify­ing as a result of regulation, including the new SEC rules, but they are inten­sifying in re sponse to investor demands in any case. It is therefore critical to have timely and accurate data at your fingertips as a private equity firm or administrator, which is exceedingly difficult without the use of technology. Technology can help with the sourcing of data and with moving that data across channels, which is what needs to hap­pen with any reporting process. Again, technology has really become a must-have in meeting the additional demands that fund managers face today.

Q What are the foundational steps that firms need to take to maximise the potential of the data that they hold?

Small firms can probably handle data requests and analysis in Microsoft Ex­cel. That becomes increasingly difficult to manage, however, as the business scales. It is therefore crucial that firms have a regimented plan around data from the outset, otherwise things can quickly become complicated, particu­larly when it comes to establishing a single source of truth.

Back-office teams, investment teams and marketing teams, for example, may hold different data sets that can often overlap. That data needs to be aggre­gated, normalised and validated until everyone is confident that the data they are accessing is based on the most accu­rate and up-to-date information. Only then can firms consider moving on to the next step of gleaning accurate and meaningful insights from the data and automating processes.

Q To what extent are private equity firms leveraging automation tools and data analytics today and what are the most interesting use cases?

At the highest possible level, there are three areas where private equity is exploring the use of automation: op­erations, portfolio management and investment decision-making. It is in the operational arena that we first saw many of these automation tools come into play. Any time you are dealing with a recurring process, such as an invoice payment, for example, that is a task that can be streamlined through automation.

Communication with portfolio companies, meanwhile, is another tan­gible use case for automation. Manag­ers require businesses to provide reg­ular updates on financial performance that are then fed into a data model up­stream. Automation can really help in processing that information, regardless of the format in which it arrives. There are tools that can be used to standardise the different balance sheet and income statements coming from portfolio com­panies, allowing the firm to compare apples with apples and to feed the data into valuation models. In some cases, this data is coming from hundreds of different portfolio companies and so the ability to process and standardise it without manual inputting is clearly a massive efficiency gain. Teams that would have acted as data aggregators are instead able to spend more time re­viewing and analysing the output.

By contrast, we are still in the ear­liest possible stages when it comes to automating investment decision-mak­ing processes. The focus for GPs right now is very much centred on creating a single source of truth, then employing automation tools to pull the relevant data so that humans can make decisions based on the best possible information.

Q What are the next steps for private equity when it comes to tech adoption?

What is most important is that we have now reached a stage where there is near-universal recognition of the im­portance of tech adoption. Just a few years ago, not everyone was necessar­ily sold on its benefits and tech adop­tion certainly wasn’t always viewed as the priority. That situation has flipped entirely. Of course, different firms are at different stages of that journey, but thanks to the now ubiquitous coverage of the benefits of automation in the mainstream media, we have got over the most significant hurdle, which is the willingness to embrace what tech­nology has to offer.

It is important to recognize that no one is trying to get to a point where automation software is being used to identify an investment target, carry out due diligence and then spit out a yes or no answer as to whether or not the firm should proceed with that deal. No one is looking to go to those extremes. Instead, firms are experimenting with using technology to identify market trends and carry out sensitivity analy­sis, and then build in the human judge­ment that sets them apart. The use of technology in private equity has never been about replacing people. Instead, it has been about maximizing the poten­tial of that human resource.

Insights

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News

The shifting sands of fund administration

Real estate fund administrators are plotting a new path from insourcing to outsourcing via co-sourcing models, says Anita Lyse in an interview with PERE.


architecture bridge over sea

The ongoing growth and scale of the private equity real estate fund industry, coupled with the need for increasingly sophisticated technology platforms, is driving a further shift from insourced to outsourced fund administration models. The environment in which fund managers are operating has become a lot more complex, explains Anita Lyse, group sector head, real assets at Luxembourg-based fund administrator Alter Domus.

“What we have started to see as we enter the so-called ‘third generation’ of fund operations is the concept of interoperability of technology and operations between managers and administrators,” says Lyse. “That is still a recent development. There is so much more that can be done when it comes to harnessing the tools of automation, machine learning and AI. In many ways we are on a never-ending journey.”

What are the key factors driving the evolution of real estate fund operating models?

The real estate industry has shown double-digit annual growth over the past 20 years, both at the local level and globally. That is going to continue, albeit at a slower pace. At the same time, we have seen industry consolidation, with managers becoming bigger and more global. Then there is the regulatory environment which is leading to increased reporting requirements.

And lastly, as investors become more sophisticated, they are also asking for more types of reporting. With fund managers increasing in size, they need to scale up their operations and manage that growth process just as we ourselves did. Alter Domus started out in 2003 in Luxembourg as a spinoff of PwC. Back then, we were not a fund administrator at all, but a small corporate services provider only.

In fact, if you look back 20 years or even 10, there were not that many options out there for a global real estate investment manager to outsource to, that is, specialized providers with a strategic focus on real estate who understand the entire value chain. Real estate fund administration is not only about fund accounting, but also about property accounting, and reconciling the two is easier said than done.

Fund administrators have come a long way to be fit for purpose for these global managers. In the early days of the global financial crisis, we took a step up in the value chain by going into fund administration. And now, 15 years later, here we are with more than 5,000 people, 39 offices across the three main regions globally and $2.5 trillion in funds under administration.

How is the accelerating digitization process impacting the fund management industry?

Traditionally, fund administration was largely an insourced activity and Excel was very widely used. Only smaller bits and pieces were outsourced initially, but as the fund administrators became better and more professional, they started using dedicated operating systems and technology platforms. Now we are seeing a move away from emails for communication, with clients and investors as part of the fund administration process, and instead using digitized solutions and workflow applications across many activities. These tools significantly reduce the use of emails in fund operations, which saves time and minimizes the risk of error.

The whole concept of how you run fund operations in the alternatives space is becoming more sophisticated and it is now starting to catch up with the UCITS (Undertaking for Collective Investment in Transferable Securities) business – a regulatory framework for mutual funds in the European Union. While standardization is quite easy in the UCITS business, it is much more difficult in the alternatives world, but that is where the industry is heading. If you have reached a certain size, operate globally and need scale, then there is really no other choice than to try to standardize as much as you can.

One of the big challenges for us as an organization was to find a solution to facilitate the approval process of accounts payable for our real estate clients and to create dashboards around that, so everybody knows what the status is and can retrace each step via an audit trail. It comes down to managing the volume of these repetitive processes. Digital workflows give the client greater insight into their fund administration, and that transparency enables them to improve their risk management and the efficiency of their operations. It also frees up time for everybody involved in the repetitive, low-value tasks of the fund administration process and enables them to focus more on activities that add value.

In what way are environmental, social and governance concerns affecting the fund management industry?

ESG is adding a layer of complexity, as managers, investors and regulators are all asking for more data and reporting around these issues. The market has more maturing to do in this area, as there is still a lot of room for improvement and standardization. In that respect, I think we are going to see a further evolution of the industry in the next few years. This is also very much an ongoing work in progress.

In what way is the European real estate fund administration market evolving?

Initially, we operated exclusively in Luxembourg, which is the largest fund domicile in Europe. I do not think that is going to change any time soon, so we are going to continue to grow our Luxembourg fund business. In terms of the offices, we have locations across Europe today, and we also have a presence in the Channel Islands, which are likewise large and significant fund domiciles. But there are also plenty of opportunities in the local investment markets, such as France, Germany, the Netherlands and Spain.

Our most recent office opened in Milan. That was largely driven by a client’s need for services to help them with the administration of the local property-owning entities of their real estate investments in Italy. And now that Brexit has been done and dusted, we also see a lot of traction in the UK. It is a significant jurisdiction for us and a place where we see a lot of growth opportunities. The UK ranks among our fastest growing offices in terms of our real estate business.

We are also seeing further rationalization of service providers by larger fund managers. A pan-European real estate fund manager, for example, may have appointed fund administrators on a fund-by-fund or even a deal-by-deal basis in local investment markets, and now they have a very fragmented and patchy model. They may not necessarily want to work with only one service provider in Europe, but they certainly do want to rationalize. And the larger players, in particular, do not just want a service provider, they want a long-term partner.

Where is the greatest potential for the shift from insourcing to outsourcing of real estate fund administration?

In the US. It is the world’s largest real estate market, and it lags on the outsourcing curve compared to Europe, where the outsource model is a lot more common. There is a desire to outsource more in the US, but there has traditionally been a lack of solid providers who also understand the entire real estate value chain. We think there are massive opportunities in the US market, and it is one of the focus areas for our own growth as a business. We have a pretty good presence in the Asia-Pacific market, too, and want to continue to grow there as well.

In the US, a typical setup for a fund manager has been to work with their own technology and people. But they have now started on the outsourcing journey via co-sourcing, which is a bit of a hybrid between a full-blown outsourced model and the traditional model. Co-sourcing is essentially a setup where the fund manager retains their own technology platform and data warehouse, while we, as an administrator, will have access to that and effectively perform the processes using our client’s technology stack. The benefit for the client is that they remain the owner of the data, and for some clients that is important. This model is gaining increasing traction in the US market in particular.

When we enter into a co-sourcing agreement, it sometimes comes with what we call a ‘lift out’ that includes the takeover of a part of the back and middle office of our clients. Our client’s staff become Alter Domus employees and they may continue to work in the fund manager’s existing systems or sometimes we take their technology with us. If the fund manager believes their tech stack is outdated, unsustainable or not scalable, we would go through a lengthy process of data migration from their legacy systems – typically also including a stack of Excel sheets – into our technology solution.

We have done several lift outs in various places in the US, some small and some quite sizeable. People are at the core, so you need to make sure you get that right to ensure the continuity of the operations. It is never a question of ‘plug and play,’ but we have developed what we think is a strong playbook because we have been through the process many times. In real estate, historically, back offices have been bigger than in other asset classes because of the greater complexity of real estate as an investment product.


This article was originally published in PERE’s Value Creation Report.

Key contacts

Anita Lyse

Anita Lyse

Luxembourg

Global Sector Head, Real Assets

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Alter Domus appoints Demetry Zilberg as Chief Technology Officer and Group Executive Board Member


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Alter Domus, a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry, has appointed Demetry Zilberg as its new Chief Technology Officer.  In this role, Demetry will report to Doug Hart, Alter Domus Chief Executive Officer, and will also join Alter Domus’ Group Executive Board.

Demetry brings a strong track record of product driven technology transformation and program delivery in the financial services industry. Prior to joining Alter Domus, Demetry was the Chief Technology Officer and Managing Director in the Digital Technology & Innovation business at Wells Fargo.  He also spent 20 years at FactSet in various technology roles and ultimately serving as the firm’s CTO.

Alter Domus CEO Doug Hart said: “Demetry has an outstanding background in delivering technology solutions for financial institutions, and we are thrilled to have him join our high-performing Technology team. His leadership will be immensely valuable in advancing Alter Domus’ proprietary technology platforms and product offerings, as well as further differentiating our unique tech capabilities and assets.”

Following the announcement of his appointment, Demetry Zilberg, Alter Domus Chief Technology Officer, said: “I am excited to join Alter Domus and lead its enterprise-wide technology strategy and execution. The opportunities to leverage technology to drive product outcomes, in the alternative investments space, are enormous as firms modernize to grow and scale. Data and analytics-driven products are a particularly exciting opportunity. I am looking forward to collaborating with our talented and experienced group of executive leaders and technologists to accelerate Alter Domus’ growth and continued success.”

Demetry attended the Pennsylvania State University where he studied Biochemistry & Molecular Biology and Electrical Engineering.

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Alter Domus appoints Amaury Dauge as Chief Financial Officer and Group Executive Board Member


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Luxembourg, April 8th, 2024 – Alter Domus, a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry, has appointed Amaury Dauge as its new Chief Financial Officer. In this role, Amaury will report to Doug Hart, Alter Domus Chief Executive Officer, and will also join Alter Domus’ Group Executive Board.

Amaury has a broad international experience ranging from stock exchanges to fintech, and he conducted a number of business transformation projects in capital investments, M&A and post-merger integrations. A significant part of Amaury’s career has been as CFO of global financial services organisations such as Allfunds and Euronext, where he has played a key role in successful IPOs on both occasions.

Alter Domus CEO Doug Hart said: “I’m delighted to welcome Amaury to the Group Executive Board. He brings exceptional leadership, and a proven track record to the business that will help drive our strategic ambitions. This also comes at an exciting time where Alter Domus is preparing to enter its next phase of growth.”

Following the announcement of his appointment, Amaury Dauge, Alter Domus Chief Financial Officer, said: “Few companies can match Alter Domus’ excellent results and boundless ambition. I’m therefore particularly proud to be joining its talented teams.”

Amaury holds an Executive MBA from INSEAD, a CIIA from CFAF – Centre de Formation à l’Analyse Financière, and a Bachelor of Business Administration in Finance from the Inseec Group.

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