News

Alter Domus enhances middle office private debt offering across services, technology, and data integrations

Alter Domus’ focus on custom offerings with clients’ preferred platforms ensures consistency across the full loan lifecycle.


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Chicago, October 15th, 2024 – Alter Domus, a leading provider of tech-enabled fund administration, asset and corporate services for the alternative investment industry, has refined its middle office services as part of its comprehensive private debt offering. The offering brings together services, proprietary technology, and data integration, allowing private debt managers, broadly syndicated loan managers, and CLO managers to scale their strategies and meet their evolving needs.

By combining services, technology and data integration, Alter Domus delivers a best-of-breed front- to back-office solution, with a strong focus on continuous updates and seamless integration with clients’ preferred front-office, cloud, or back-office platforms and tools.

This commitment is evident in the firm’s $1.4 trillion debt assets under administration, and its ability to service complex bespoke loans, such as payment-in-kind (PIKs), unitranche, participations and non-pro rata while maintaining a “golden copy” of the client’s data throughout the entire loan lifecycle. Clients benefit from a cohesive, customized middle-office solution that is capable of handling today’s increasingly complex credit environment and the unique ways that each firm approaches their fund operations.

The middle office has long been underserved when it comes to loan servicing, and Alter Domus’ enhanced middle office capabilities address this gap. It is the result of our decades of experience serving loan market participants together with significant investments in specialized loan technology

Greg Myers, Sector Head of Private Debt at Alter Domus

Alter Domus’ middle office service offering includes:

  • Loan services: Alter Domus’s servicing teams provide a cost-effective and scalable solution that includes loan accounting, tracking, reconciliation, and reporting, all carried out on the firm’s proprietary solutions, Solvas and Virtual Back Office.
  • Agency services: Alter Domus is the largest loan agency service provider on the market, serving the world’s biggest private debt and broadly syndicated loan (BSL) managers. Its scalable, proprietary technology coupled with sector-specific knowledge is purpose-built to reduce the risk and burdens of administering leveraged loan, private credit, and BSL transactions for clients.com/services/private-debt-solutions/.

To learn more about Alter Domus’ comprehensive private debt offering, visit alterdomus.com/services/private-debt-solutions.

About Alter Domus

Alter Domus is a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry with more than 5,800 employees across 39 offices globally. Solely dedicated to alternatives, Alter Domus offers fund administration, corporate services, depositary services, capital administration, transfer pricing, domiciliation, management company services, loan administration, agency services, trade settlement and CLO manager services.

Find out more at www.alterDomus.com

Media Contact
[email protected]

Key contacts

Greg Myers

Greg Myers

United States

Global Sector Head, Debt Capital Markets

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News

Alter Domus announces strategic partnership with Partners Group

A global mandate to support over 1000 Partners Group product entities


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September 17th, 2024 – Alter Domus, a leading provider of tech-enabled fund administration, asset and corporate services for the alternative investment industry, has entered an outsourcing partnership with Partners Group, one of the largest firms in the global private markets industry. The partnership sees Alter Domus support a broad range of operational functions for Partners Group’s closed-end product offerings, spanning investment structures across the U.S., Europe and Asia.

Alter Domus was selected by Partners Group for its service delivery, breadth of technology capabilities, global footprint, and the distinctiveness of its tried-and-tested approach, focused on ‘co-creating’ bespoke operating models tailored to meet the specific priorities of individual investment managers. The partnership, which went live on June 1, commits Alter Domus to invest in innovation and integration to deliver a high level of service quality and enhanced efficiency across Partners Group’s operations. Other factors include joint investment in a bespoke technology roadmap, and joint governance dedicated to the relationship.

In one of the largest deals of its kind, the partnership provides administrative support for over 1,000 Partners Group product entities, and covers fund administration, client due diligence, corporate secretary, and depositary services.

Alter Domus Chief Executive Officer Doug Hart said: “We are thrilled to partner with Partners Group as a global outsourcing provider. By collaborating with Alter Domus, our best-in-class capabilities of global private market services and technology will help Partners Group to focus on their core investment management strengths.  Aligning with Partners Group’s growth ambitions is no small task, we are honored to be selected as their private market services partner.” 

Andreas Knecht, Chief Operations Officer, Partners Group, said: “We selected Alter Domus as a global outsourcing partner after a rigorous selection process in which they impressed with their ability to tailor their services to Partners Group’s suite of bespoke client solutions.”

About Alter Domus

Alter Domus is a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry with more than 5,100 employees across 39 offices globally. Solely dedicated to alternatives, Alter Domus offers fund administration, corporate services, depositary services, capital administration, transfer pricing, domiciliation, management company services, loan administration, agency services, trade settlement and CLO manager services.

Find out more at www.alterDomus.com

Media Contact
[email protected]

News

Embarking on major organizational change? Here’s what to consider

Jessica Mead, Regional Executive North America at Alter Domus on how managers can
change their organization while maintaining the best of their culture and operations, featured in the 2024 Preqin Service Providers Report.


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Interview

Q What factors are shaping the way fund managers think about operations in 2024?
If we rewind to 10–15 years ago, we dealt with a much smaller market. Fund managers would often be single strategy with LPs predominantly in their domestic base. Or, for example, North American clients were primarily institutional investors, with a sub-pocket of smaller European investors. All of that has changed quite significantly. Today more managers are running multiple strategies across all asset classes and AUM has mushroomed alongside a global investor base that’s increasingly diverse and demanding. Regulatory demands have also intensified. Important challenges are coming through, whether it’s ESG reporting or (although on hold) the Private Fund Adviser rules with the SEC. Everything is just much more complex than it has been in the past and this means managers in 2024 can’t run their back office and operations in the same way anymore. The days of simple emails and spreadsheets, and off-the-shelf accounting processes are long gone. Fund managers today need an extremely strong operational backbone. They need to quickly understand the big regulatory environment that’s facing them on the road ahead.

Q What role does technology play in this?
Best-of-breed technology is key, but it must be coupled with your operational environment. The question is: how do you marry the technology infrastructure without compromising your investment strategy? For 20 years at Alter Domus, we have built the tools to help support our managers in answering these questions.

Q What are the main friction points when a client decides to push ahead with a change?
Change is hard, especially when you have a strategy that’s been working so well. When you’re very successful it’s hard to take a step back and go through that change. With the speed at which technology and automation are happening, you must look at the change for what it is. Senior management buy-in is critical when bringing entire teams along on this journey. Success comes when there’s a deep understanding from management of how the day-to-day changes will impact their teams and where to identify areas to improve. For example, maybe this change will allow teams to focus on something they hadn’t been able to in the past. I think that mindset is critical.


Q When is a bespoke approach needed?
So, it comes down to how the manager is set up. If it’s a single strategy manager with a very small investor base, you can probably use that off-the-shelf model and be very successful in doing so. But if you are a manager with a global investor base running multiple strategies, multiple currencies with segregated accounts, and coinvestment vehicles, then there is added complexity in what is required to deliver to those investors. If this is the case, then you are going to need an operational model that’s bespoke to you. But also, whatever you build needs to fit within your culture. Bespoke is about taking on a partnership approach with an administrator who can help support your growth going forwards. It’s also about expense, strategy, and where you want to strategically spend your money to support that growth.

Q In the years ahead: what kind of administrative and compliance issues might fund managers be preparing to tackle? What steps should they be taking now?
I wish there was a crystal ball to tell you exactly – but regulation is inevitable. Just given the size of the industry today and the amount of capital that managers are managing at this point, I think we should expect that more regulations are coming, and be ready. The critical question is how do you prepare for this? I think you must look at your back-office infrastructure. You must understand what expertise you may already have in-house, and what expertise you may need from a partner. This is most important with regulation. Working with someone to understand what’s coming through and being able to manage that on a real-time basis is crucial.


Q How often should a manager be thinking about refreshing or changing technology?

I don’t think it’s yearly. The uplift from changing your technology lasts much longer than that. But I do think you should be assessing your technology needs and regularly testing how you administer your technology as often as needed. As a rule, I’d say that at least every three years it’s important to ask – what’s the purpose of this technology? Even if you don’t decide to make changes it’s worth regularly looking into how reporting requirements are changing. How is your investor base changing? What are the new expectations coming from those investors? How can technology support the new regulatory environments downstream? I think from a technology perspective, it’s not just the systems, but it’s the output of those systems. How do you become more efficient? How are you able to be nimbler? What can you provide to your investor base as a critical component of your accounting systems? The technology world changes so rapidly, but is it changing enough for you to make big leaps? The migration of a new technology or a new system takes a long time. It takes much longer to implement the technology than it takes for the wheel of the technology cycle to turn. I think you have to be careful to avoid disruption to your own internal back office, your administrator, and even your clients. You really have to time it right.


Q What kind of feedback do you get from managers when they embark on this journey and things go well?
Customer needs drive our tech development, and we recently had some validation on this front from one of Europe’s most respected asset managers – Park Square Capital (PSC). PSC are a dynamic institution with an exceptional market strategy, and we partnered with them to answer a fundamental question: how could they remove the inefficiencies in their portfolio monitoring process where it came to the ingestion and communication of data at the underlying asset level? The answer was the utilization of the data extraction component of our Credit.OS platform, which was specifically designed to help resolve the exact issues PSC had been facing. Developed with automation and machine learning at its core, our system digitizes, normalizes, and aggregates data, and has been trained on millions of corporate financial documents. Post rollout, PSC informed us that it had helped them in multiple ways. Firstly, it minimized manual data entry and facilitated the centralized tracking of hundreds of financial data points. Secondly, it enabled the use of one standardized reporting template across 100-plus portfolio companies which all have slightly different formats of reports. Lastly, it led to a dramatic reduction in time spent on valuation audit queries and massively decreased the number of reports going out late due to the enhanced efficiency of the process. This was music to our ears, and really underscored that a customer-centric approach to technology is the right path forward. Ultimately, technology is a means to an end, and the end for Alter Domus is the success of our clients.

Read the full report on Preqin’s website today.

Key contacts

Jessica Mead

United States

Regional Executive North America

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Keynote interview

Honing operating models to capture growth opportunities

Greg Myers shared his insights in September’s PDI US Report about how how experience is key in choosing the right operating model


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Interview

Q Given the rapid growth of private credit, what do managers need to consider when shaping their operating models to take advantage of new opportunities?

There are a number of considerations – not only the outsource versus insource question, and which systems and technologies to engage, but also the allocation of costs. Typically, overheads and internal staff are paid for by the management team whereas fund expenses or middle office administrative costs are borne by the funds themselves. Attempting to reach that balance with the right oversight and the correct cost allocations is a challenge, as is how much control you want over the entire system. Oversight and control can take many forms, managers need to ask themselves whether it is enough to have a small staff overseeing a provider, or whether building an entire oversight operation that oversees everything done by a provider would serve their interests better. Similarly, private credit has far more moving parts than exists in bonds or equities. Obviously, the oversight and investment management is similar, but loans are more complex with multiple tranches, different rates and payments of principal and various sources of income that need to be tracked. Added to that, the information ecosystem that exists for broadly syndicated loans isn’t there for private credit, so you may be in a small group of lenders where the data is not easily recovered, creating its own problems.

The choice of operating model also depends on the size of the manager and their level of experience. The infrastructure required for private credit operations and accounting is very different to private equity. In credit, you need the ability to track portfolios that are very dynamic – an entirely different skillset for accounting and operations staff . Investors now typically require a fund administrator, so the question really is what level of infrastructure is needed to engage and oversee your chosen administrator. At Alter Domus, we use a number of systems. We own innovative technology such as Solvas, which offers integrated accounting, modelling and credit risk solutions, alongside a licensed loan administration platform called Sentry. This means we can support from inside a client’s own portfolio management system – integrating data and sometimes even operating from within the client’s systems. All these options feed into our fund accounting systems, which provide managers and investors with regular reports – either on a monthly or quarterly basis. Clients receive data feeds so they can update their own internal accounting systems. Some clients are very light touch and comfortable with an outsourcing model; others run a full internal operations team that tracks what we are doing daily. There is a cost implication to the latter, but we work to what our clients need.

Q What should managers look at when considering outsourcing versus insourcing options?

Not all fund administrators offer portfolio accounting in their loan administration system, but at Alter Domus, we find that it is key to the core team having enough understanding to be able to check daily. Whether you opt to outsource or run your own team, experience is key, something which we have found is getting harder to find amid the talent squeeze that exists within running private credit operations. Finally, I’d highlight the value in an organization’s ability to manage and track data internally and whether they have the requisite software and IT systems that can support substantial data.

Q How can managers maximize opportunities around technology to support their operations?

We have found that a lot more managers opt for co-sourcing arrangements today, meaning we do the work on their systems. They can trust that they have full transparency and access to everything we do, as well as the ability to seamlessly access the underlying data that we work with. This is becoming the preferred model and more commonplace, as managers can achieve greater efficiencies when they don’t have to manage or hire staff – they are making the investment in the technology but not the headcount.

We have completed several successful lift-outs over the past few years when we took on the staff and cost from a client and updated their systems. In doing this, we construct a revenue model that makes sense for the manager, while giving their people a career path that they might not have access to if they stayed at the fund manager. It is much more important to investor today that they have access, through their manager, to all their underlying portfolio data, so it often makes sense for managers to own that IT infrastructure.

Q What should GPs prioritize for data integration?

Within each GP, there is often a struggle between constituencies. Investor relations teams want a whole set of data around performance and what they can put together for investors; operations teams need enough access and availability to analyze data and satisfy investment professionals; the front office wants feedback on performance of the portfolio assets, and the accounting team need to make sure the fund books and internal books of the manager are up to date. There is no single system that does all those things and satisfying all of those constituencies is huge task. Many of our clients will focus on one aspect first before moving forward with others, depending on their own priorities.

Q How are both LP and regulatory demands likely to evolve going forward, and what can managers do to future-proof their approaches?

It is always risky to speculate on this, particularly in the US, given the political backdrop of a presidential election year. What is clear is that there will be an even greater increase in regulation and oversight down the line, as legacy private credit was historically handled by regulated banks and institutions. Despite the overruling of the SEC regulations, we expect an increase in adoption of the practices and disclosures recommended in them, as well as a heightened focus on how private credit operates with investor money being lent to private companies. Understandably, LPs want more and more. The operational data that we help clients prepare for the more sophisticated LPs is increasingly time-consuming, with requirements for everything from information safeguards through to physical office security. The detail required in these requests is also getting more and more granular. Managers need to have a highly robust framework in place to ensure their internal infrastructure can meet those demands. That means thorough change management investment underwriting and oversight processes, and partnering with service providers that have corresponding policies and procedures. Even more investment is going to be needed into compliance infrastructure, or in partnering with others that have made that investment in a way that can be relied upon.

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News

Still going strong: secondaries deals resilient in though market

Tim Toska, Sector Head Private Equity, explains in PEI’s Secondaries Special how a slowdown in exits and fund distributions has sustained secondaries transaction activity, as managers seek liquidity in still choppy deal and fundraising markets.


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Interview

What are the main drivers behind activity in the secondaries market at present?

The primary driver behind secondaries deal volume over the past year has been a significant slowdown in exits and a subsequent slowdown in fund distributions. This has resulted in liquidity challenges for limited partners, creating opportunities in terms of LP-led secondaries. Many investors have sought to sell off portions of their portfolios, often earlier vintages, in order to free up capital to invest into newer funds. Equally, a lack of traditional exits has also led to LPs placing pressure on their managers to generate distributions in creative ways, which has resulted in an increase in GP-led secondaries. It is all interconnected, but it fundamentally stems from a slowdown in private equity deal activity, and particularly exits.

Capital raising for PE secondaries strategies fell year on year in Q1 2024. Why do you think that happened?

Outliers can sometimes skew data, and I think that is at least partially what is going on here. In the secondaries industry, you have a number of mega-managers that are raising $15 billion or even $20 billion-plus funds. The timing of those closes can therefore impact quarterly fundraising figures significantly. Our impression is that secondaries remains an area that investors are paying a great deal of attention to; I would expect the numbers to even out over the course of the year. It is worth bearing in mind that LP due diligence processes are taking longer than they have done historically. Investment committees have more questions than ever that need answering before a commitment will be made. That is true not only of secondaries, of course, but of all strategies, and I don’t believe that the story that played out in Q1 will be the story that defines secondaries this year. In fact, I believe that 2024 will ultimately come close to, or even exceed, 2023 in terms of secondaries funds raised. Certainly, I would not only be surprised, but shocked if the order of magnitude of the drop-off that was recorded in Q1 continued over the rest of the year.

What are some of the specializations that secondaries firms are using to stand out from their competitors?

One of the most pronounced evolutions in this industry over the past decade has been the growth of the GP-led secondaries market, which has now reached a similar scale to the LP-led market. LP-led and GP-led secondaries deals have different due diligence processes, requiring different skills in the team, as well as different time horizons and return profiles. The decision to specialize in one of these deal types has therefore become an important source of differentiation. Within the GP-led space, you then have managers focusing on specific sectors or company sizes, while in the LP-led world, you also have managers focusing on different niches. There are firms that are targeting venture capital fund interests, for example, rather than simply buying diversified portfolios of whatever the seller is looking to sell.

How can private equity firms encourage further participation in the secondaries market?

The best way to encourage participation is to ensure that your processes and policies do nothing to actively discourage it. What I mean by that is any friction around the closing of secondaries deals, such as information friction– how challenging it is to access and share data – should be minimized. Approval processes should be streamlined and any costs associated with transfers, including setting up continuation vehicles in the GP-led market, must be taken into consideration.

To what extent have macro challenges impacted secondaries investing over the past 12 months?

The secondaries industry has grown up in a 0 percent interest rate world with myriad drivers of transactions, including investors taking an increasingly proactive approach to portfolio management. This resulted in the huge growth of the industry during that period. Now, however, the interest rate environment has become the number one motivation for sellers, and that macroeconomic context has had a profound impact on an aggregate level across the private equity industry. Investors are sitting on substantial sums of unrealized capital and are looking to the LP-led secondaries market to generate liquidity. The same is true of the GP-led market, where we are seeing a particular focus on mid-market companies, because of the pressure that companies of that size are facing against a higher for- longer interest rate backdrop. The ability to roll a business from its existing fund into a continuation vehicle offers additional time and potentially additional capital to allow the manager to continue to add value until a more favorable exit environment arrives.

How are novel technologies being used in secondaries?

At the investment team level, we are seeing the use of OpenAI and automation tools in order to improve the

efficiency of deal screening. Anything that allows firms to process information more quickly and to reach better

decisions in a shorter amount of time can add a huge amount of value: when a secondaries opportunity emerges, deadlines can be tight. Teams may have to come up with a price in a matter of days. The more efficient you are, the

higher the volume of deals you can assess without leaving any stones unturned. Technology is helping to make this possible in a way that doesn’t require more people or longer hours. Innovative technologies including AI are also being employed to analyze market signals, identifying opportunities in specific market segments in the LP-led space or in types of companies in the GP-led space.

What role does the secondaries industry have to play in private equity being opened up to new types of investors, including HNWIs?

We are certainly having more and more discussions with clients about the structures they can use to access the high-net-worth investor base. These HNWIs are naturally gravitating towards secondaries in order to gain exposure to private equity in a way that offers them greater diversification and the ability to put large lump sums of money to work quickly, and to start receiving distributions quickly as well. We are seeing a growing number of feeder entities tailored for these HNWIs. There are also a number of aggregator firms out there curating relationships with either financial institutions or directly with the HNWIs themselves. This approach is similar to a feeder fund, but in this instance there is an outside entity performing all the anti-money laundering and Know Your Customer diligence of the investors. In addition, we are seeing new fund structures being developed by regulators on both sides of the Atlantic. In Europe, for example, we have the ELTIF 2.0, which is another means for accessing the asset class. Secondaries often represent a significant part of those portfolios due to the attractive investment thesis this market offers HNWIs. As a result, secondaries managers are extremely focused on figuring out how to access this potentially huge pool of capital.

Key contacts

Tim Toska

Tim Toska

United States

Global Sector Head, Private Equity

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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


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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

Insights

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Liquidity in private markets: part two – NAV finance

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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Insight

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.


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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.

Insights

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