Driving PE operations: Popularity drives growth in outsourcing, says Viteos
Outsourcing, as a general trend, has grown in popularity among asset managers as they look to benefit from economies of scale. This is playing to the advantage of service providers such as Viteos, an industry leader in the provision of outsourced shadow accounting. By using outsourced providers, managers are freed up to expand and accumulate assets.
“Through automation, Viteos facilitates Straight-Through-Processing (STP) for its clients, thereby minimising operational inefficiencies. We are conscious that all of our clients are unique and therefore provide a service that is truly bespoke. Our solutions are tailored to each manager’s preferences,” explains Chitra Baskar (pictured), Chitra Baskar, Chief Operating Officer, Viteos Fund Services and one of the company's co-founders.
From a growth perspective, few asset classes have performed as well as private equity and real estate (PERE) in a market environment characterised by fluctuating volatility levels and low interest rates. Private equity has outperformed public markets and other alternative fund strategies, “and institutional investors are now hurriedly building up exposures to the asset class”, observes Baskar. “Flows have been strong into private equity and the asset class is attracting and managing more capital than ever. Viteos is confident this growth trend will continue.”
Historically, Viteos has serviced a complex array of asset classes and a broad range of alternative asset managers. These have comprised some of the most complex and esoteric illiquid strategy sets in private equity, private debt, real estate, and energy investments.
“Our mandates also include single investor structures – namely separately managed accounts – many of which have highly complex fee calculation processes. This is a growing market for Viteos. We presently administrate USD40 billion in illiquid assets, translating into roughly 25 per cent of our total AUA. It is an expanding business line for the company,” confirms Baskar. He adds that the kind of highly customised offerings Viteos provides to private equity managers include LP portals and general partner and management accounting.
When asked what some of the key challenges are for private equity, Baskar remarks that operational processes, in particular, are in need of automation.
A number of middle- and back-office functionalities rely on manual intervention, which adds cost, risk, and inefficiency to private equity enterprises. The EY Global Private Equity Survey 2018 said that outsourcing and automation were being explored by CFOs as they look to “maintain operational success and enable scalability.”
Among the benefits of outsourcing cited by EY’s survey, respondents in 2017 included; increased capacity (79 per cent), greater industry expertise (68 per cent), better technology (66 per cent) and reduced headcount (42 per cent).
Viteos’ customisable technology provides managers with efficient end-to-end lifecycle processing as a complement to operations. Improving efficiencies through outsourcing or technology, private equity managers can invest more time and energy into their deal-making activities.
“Viteos has invested heavily in its technology solutions, helping managers achieve efficiencies in their middle and back offices, and investor servicing,” says Baskar. “We provide a high touch customer product and low touch automated delivery models. As an industry leader, Viteos is expanding its technology offering into new digital fields such as AI and robotics to help improve the customer experience and deliver further value.”
A major challenge for managers is achieving scalability within accountancy teams when AUM grows.
Access to accountants who understand all aspects of the business is essential, especially as strategies become more complex; all the while, regulation and client reporting volumes increase. By acting as an extension of clients’ in-house accountancy teams, Baskar says that Viteos “seamlessly augments operational processes, expediting the majority of reporting obligations”.
Private equity is becoming ever more institutionalised as large-scale allocators such as pension funds and insurers (attracted by the returns and diversification offered) incorporate the asset class into their portfolios.
Their need for transparency and high reporting standards is forcing upgrades to technology, systems, and operational processes.
Baskar says that the trend is reminiscent of the early 2010s when hedge fund assets grew significantly from institutional inflows.
“Given investors and reporting are fairly similar for both asset classes, private equity is driven to upgrade technology and operations more by increasing complexities in its business and less by reporting. Engaging providers with proven track records, state-of-the-art architecture, and expertise in funds and structures helps managers service their institutional customer base,” says Baskar in conclusion.