Data shows new Private Equity funds are attracting a lot of capital in 2022. How can your fund stand out from the pack?

The past few years have brought a lot of anxiety to the investing world, as we didn’t know how the pandemic would affect investors’ habits and risk considerations. A new report shows some encouraging signs for Private Equity and offers insight into what managers of both new and existing funds can do to attract investors in a crowded marketplace.

The report

The new report comes from Convergence, which provides data, research, and analytics coverage of the Alternative Investments Space. Titled, “2022 – State of the Union: Alternative Asset Management Industry Research 2019-2021,” the report covers three years of data from over 130,000 private funds and 13,000 advisers domiciled in 68 countries.

In addition to providing hard data, the report also includes analysis of market trends in private fund capital flows, staffing, productivity, and ESG practices. Overall, the report is bullish on many markers for private funds, including the number of advisers, number of private funds, AUM, and capital flows into new private funds. When the data is broken down by fund type, Private Equity really stands out.

Private Equity leads the way for new funds

The amount of capital investors allocated to new funds over the data period was analyzed by fund type, with Private Equity earning more than 44% of all capital allocated to new funds, making it the largest sector represented. The number of new PE funds increased 25% over the period.

Capital flows to existing PE funds were up 28% from 2019-2021, representing the third-largest sector included in the report. This is good news for Private Equity, as more capital is being invested and more funds are being created to meet the demand. But there are other areas where PE seems to be behind the times.

Private Equity lags behind on outsourcing

Of the sectors examined, Private Equity had the second-lowest percentage for outsourcing, at 58%, well behind Securitized Asset Funds, Hedge Funds, and Hybrid Funds, all of which were above 70%. PE also had the second-highest percentage of self-administered funds in 2021. So while PE is showing significant growth compared to other sectors, it’s falling behind when it comes to outsourcing administrative tasks.

Why does that matter? From John Phinney and George Evans, Co-Founders of Convergence:

Advisers outsource because they need to focus attention and money on improving investment returns. Historically they deployed resources against a growing list of non-investment activities, all of which are mission critical, yet do little to improve returns. Non-investment activities lend themselves to scale in the hands of the right service providers who can support larger volumes of similar transactions at a lower unit cost and risk.

Outsourcing can reduce the amount of people performing jobs that don’t drive returns. This is indicated through the non-investment support staff ratio, which declined for private funds overall over the reporting period.

Efficiency matters, and as funds become more efficient, managers will have to look for ways to improve their operations. “Advisors should evaluate their headcount productivity against these general industry trends,” says the report.

One way to become more efficient is to find a fund administrator who can handle the greatest number of tasks at the lowest cost. As the report notes, “We suspect that this will create opportunities for Fund Administrators who can differentiate themselves by offering a broader set of outsourcing services to advisers.”

So how can you find that fund administrator, and what other differentiators could position your PE fund in an increasingly crowded marketplace?

Why finding the right PE fund administrator is crucial

PE made up 38% of all new fund administrator mandates, the largest of any segment. Fund managers often outsource during the onboarding process, but PE’s low overall outsourcing numbers indicate many are choosing to self-administer after this step because they don’t realize the continuing benefits of third-party fund administration.

Managers also don’t always pick the right administrator. Private Equity had the highest number of fund administrator switches in the report, meaning these funds are more likely to change administrators than other types of funds. This shows PE managers may be behind other sectors in understanding what to look for in a fund administrator.

Outsourcing can have benefits beyond efficiency, as the right administrator can help you attract investors who care about things like security, transparency, technology, and ESG. PE Managers can set themselves apart with an administrator like JTC Americas that has expertise in these areas.

The JTC difference

JTC Americas offers purpose-built, fully customizable solutions based on industry-leading technology coupled with institutional capabilities at a global scale. No matter the size of your fund or the stage in your development, we can offer greater efficiency, reduced operational risk, and higher investor confidence. With an award-winning 24/7 online investor portal, ESG expertise, a stress-free onboarding process, and more, working with JTC can allow you to focus on what you do best: raising capital and making prudent investments.

The data from Convergence shows a lot of capital is going toward new and existing PE funds. If fund managers want to take advantage of this, they need to be efficient and offer investors service that exceeds what other funds are providing. At JTC, we’re prepared to work with you to see how our third-party FA solution can help you do more for your investors.

Growing Together

Learn more about JTC’s Private Equity Fund Administration solution by downloading our Private Equity Fund Administration Collateral!