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Q&A: Justin Partington, group fund solutions leader at SGG

SGG Group’s Justin Partington explains how technology is transforming the way private equity firms interact with their LPs and why fund administrators who fail to embrace this change risk becoming redundant.

Technology has profoundly disrupted almost every industry. How is it impacting the way private equity firms and their fund service providers such as SGG work together?

Over the last 15 years the fund administration industry, which is among those SGG serves, has barely changed at all, which is really surprising when you look at how technology has revolutionised adjacent spaces like wealth management.

Fund administration is driven by accountants, who are very good at the numbers but not the best when it comes to technology.

It wasn’t that long ago that you would have found some providers who were still using Excel, Word and a basic general ledger software package.

People have only really awakened to the technology opportunity over the last five years. Fund administration platforms have emerged, automating the production of financial statements and the processing of data.

These platforms, however, are still static and obtaining a report or information requires the manager or investor to call and ask for something to be processed.

Distributed ledger blockchain technology, however, will change some of that because it can give access to all data securely whenever it is required.

The potential impact that blockchain could have on how fund administrators operate sounds significant. If blockchain does become standard in your industry, what does that mean for firms, their investors and service providers?

It is good to look at how reporting has changed over the years as technology has become more entrenched. It started out in the mid-2000s. A pdf of all capital call statements or quarterly reports was uploaded to a static portal each quarter and distributed by email. Then providers started to offer clients documents and data charts.

That has moved on to clients asking for data and then manipulating it to their requirements. That has been quite a change for fund administrators because you now have investors and deal professionals asking for data and working with it themselves. Previously the connection with the client would be through the finance director and the administrator would keep and produce data when requested.

Where do we go next? In as little as five years I think the fund administration service will be facilitated almost entirely by technology.

It is possible that as much as 70 per cent of labour involved in manual processing can be reduced. It will be hugely disruptive.

The logic of allowing clients and their LPs access to data when and where they want it makes sense, but how can service providers and GPs keep their data secure and under control when it is so easy to access?

How data is exchanged and how it can be shared securely when cybersecurity is so front of mind is a key question.

Private links offer one solution, but it is something GPs will need to stay on top of.

Another question is what this all means for the fund administration industry, which is there to take all the hassle out of administering a fund.

If fund administrators are not processing data and reports, and clients are accessing it directly themselves, then how can an administrator add value?

That is an interesting point. If technology does take hold in this way, then what is the role for people? How will humans interface with technology that is doing a lot of what they were doing in the first place?

That is a good question. I believe that there is still a very important role for people to play. I think fund administrators will move up the value chain and evolve into data providers rather than data processors. Scale will become more important, and administrators will invest in the provision of platforms and technology that individual small and medium-sized fund managers can’t afford in isolation.

People will be needed to facilitate this evolution, but there will have to be some thoughtful conversations around what skills will be needed and where there will be dislocation.

Technology is a threat to every industry, but it also provides opportunity. It will be interesting to see how this all takes shape.

Are there any parts of the fundraising process that could be entirely managed through technology?

The clear candidate is “know your client” (KYC). I can’t begin to quantify how many billions of hours have been wasted collecting utility bills and passport scans and then finding a solicitor somewhere or other to certify or notarise that these documents are true copies. It does feel like a charade at times.

Blockchain technology can deliver massive time savings and efficiencies. Any party’s details can be entered into the blockchain and a KYC chain key issued to a manager or service provider to run the required checks. This is still an emerging area, but this has to be the way the KYC process moves forward in the future.

Given how powerful technology is, what is stopping a new player with a great platform from disrupting incumbent service providers with a cheaper, tech-driven fund administration solution?

Investors and GPs still value relationships and human contact. If you are putting a third party in control of all your information, you want to know who your counter-party is.

Information can be commoditised, but if you are an LP investing a large cheque in a manager, you are going to want to sit down over a coffee and talk through the LPA. I can’t see an investor being satisfied with just a password to a data room. Trust remains a big barrier to entry for new players.

Our industry is also consolidating and there are some big players emerging in the space. These global businesses will continue to invest in technology that will disrupt and disintermediate.

First published in Real Deals.