In the latest installment of our “Meet the Team” series, we sat down with Alan Flanagan, Global Head of Private Equity and Real Estate Fund Services for Alternative Investment Services. He discussed some of the factors driving the increased demand for outsourcing, as well as how BNY Mellon differentiates itself. An excerpt of our conversation is below.
What are some major trends and key factors driving fund managers’ increased demand for outsourcing?
The first point I would make is around the evolving operating model. The majority of managers, prospects, clients that we’re speaking to today are starting to really think about their existing infrastructure and there’s a point of acknowledgment that perhaps their infrastructure which has gotten them to here is not sufficient to get them to where they want to go in the future.
The technology associated with that and sometimes given the demands of institutional investors, their demands for greater transparency into their underlying investments are putting increased pressure on back offices and that’s also leading to a point of inflection for managers to decide should they invest in their own infrastructure or should they consider third party outsourcing arrangement- which also has the added benefit of leveraging a variable operating model as opposed to maybe the current fixed operating model which they have today.
The next point is the product set. So we have seen the evolving of the product set post crisis, where institutional investors still require the illiquid premium associated with private equity infrastructure and real-estate, but they’re looking for that to be packaged in an open ended structure. So we have now seen a significant increase in open ended core real estate for example which is something that really didn’t exist many years ago. And that itself is having a challenge on existing back-offices which are maybe not as prepared for the nuances of open ended funds as traditional close ended funds. Finally I would just add that the independence issue is also starting to have some impact. We’re seeing many institutional investors as well as distributors demanding an independent third-party administrator to govern books and records.