It is a difficult decision for any onshore general partner to give elements of fund control to a third party, but such a decision is always reversible – the information held is likely to be transferrable between systems, and manageable in terms of size. So, while it may be an onerous and sometimes daunting exercise, it is far from impossible and we will help every step of the way
As an institutional investor, your decision making process must be even more comprehensive. Any engagement with a third party is likely to be longer-term than one-off funds, and will involve integrating procedures and processes across both companies.
An important tool in this process will be the Request for Proposal (“RFP’). While meetings and face-to-face discussions will obviously play a critical part, the role that the RFP plays in helping you arrive at a list of potential service providers should not be underestimated. It is a vital part of any transfer of services between providers, and should be detailed enough for the prospective service provider to price accurately and build their governance structure around it.
So what should you ask in the RFP? Well, that depends on what’s important to you. In our experience of answering RFPs, the questions typically fall into four categories: systems capability, reporting capability, supplier capability and business sustainability:
A main difference between providers will not just be the systems they use, but rather how they use them. As service providers in the alternative space, the systems used by administrators are likely to be one of only a handful, and so how they use their systems and the system’s adaptability of use becomes crucial to any decision made by an institution.
Some issues to think about include:
Having your information held on a system brings a level of control, completeness and confidence, but the real benefit is likely to be seen in how that information is both extracted and interrogated by the users of the system. Finance teams will always want their core trial balance and nominal ledger reports, but what about risk teams, or investment teams? What do the trustee boards or investment committees need to see in order to make an informed decision at the point of selecting a fund to invest in?
Some points to cover in the RFP would include:
The service provider should be able to prove that they are able to meet and exceed demands, through the work they do with other clients. We would recommend asking for contacts within a similar sector or engagement level to yours.
Other institutional investors will have thought of solutions to these issues, and so it would make sense to ask around your network, and discuss with your potential providers:
The outsourcing of services to an administrator is a crucial point in the growth of your alternative asset portfolio, and as a result the culture within the provider selected is as important as their technical capability, as the engagement should last a number of years. This can often be as simple a process as gut-feel, but you should also be comfortable with your due diligence around the administrator’s constancy.
The administrator should be able to document:
In summary, there’s no right or wrong way of building an RFP. Hopefully, this acts as useful guide as to the type of questions you may want to ask.
To discover for yourself what makes us the bright alternative and how we can support, please contact Paul Harrison, our Co-Head of Private Equity - UK.