In the wake of global economic shifts driven by high interest rates, the fundraising environment within the private markets sector in France has hit a noticeable slowdown, with similar trends reflected across various regions worldwide.
Data provided by Preqin on France’s private equity sector revealed that €32.63 billion was raised in 2023, a noticeable decrease from the robust €44.32 billion achieved in 2021. While there was a slight improvement from the €28.92 billion recorded in 2022, it wasn’t sufficient to fully restore previous momentum. This trend mirrors a broader global pattern. As highlighted in the McKinsey 2024 report, global fundraising experienced a consecutive decline for the second year, and fell by 15% to $649 billion.
This distinctive change underscores the importance of adapting and innovating fundraising strategies for modern funds, necessitating a sharper focus on profitability margins.
Bain & Co’s latest Global Report highlights the need to recalibrate value creation strategies in a rapidly changing market. Where private equity managers have traditionally focused on rising multiples and revenue growth, they must now pivot toward enhancing operational efficiencies to drive organic growth.
Operational efficiency can aid value creation
Operational efficiency is a critical tool for fund managers looking to enhance value creation for their investors. By streamlining operational processes, managing data holistically, and leveraging technology, funds can achieve significant cost savings and improve overall performance.
Enhance efficiency and focus with outsourcing
Outsourcing is a viable strategy to improve efficiency amidst rising operational complexities. According to the Cerulli Report, 65% of managers cite improving internal productivity and leveraging external capabilities as key drivers for outsourcing, followed closely by incorporating efficiencies (58%).
By partnering with specialised service providers, managers can reallocate resources toward their core competencies of investment analysis, portfolio management, and generating returns for their investors while capitalising on external administrative expertise. Outsourcing can also make it easier to navigate the ever-evolving regulatory landscape, as third-party vendors are adept at keeping abreast of developments across jurisdictions.
Outsourcing can actually enhance an asset manager’s control over output. Unlike internal staff who may have diverse responsibilities, outsourced personnel are dedicated to specific tasks. This focused approach ensures consistent and high-quality output.
Establishing a bespoke partnership model with a service provider allows asset managers to align their back and middle office teams with their business strategy without directly employing them. Asset managers often set up strict service level agreements (SLAs) for critical tasks, ensuring prompt and reliable service delivery and providing heightened control and confidence in operations.
Keep pace with advances in technology
Embracing technology is paramount in future-proofing funds, yet cost considerations prevent many small- and mid-sized funds from taking the plunge. Leveraging market-leading platforms through service providers is a cost-effective way to access cutting-edge tech without prohibitive expenses. These platforms enhance operational efficiency, data management, and compliance, providing funds with a competitive edge they can ill afford to ignore.
The strategic use of data platforms is another critical enabler for funds seeking to navigate increasingly stringent reporting requirements. Taking a holistic approach to data management enables funds to curate, ingest, and present data from disparate sources, tailoring reports to their unique needs while ensuring security and regulatory compliance. This involves aggregating data into a single source of truth within a modern data warehouse or data lake, followed by building data pipelines to efficiently share data within a fund manager or with investors.
Additionally, the advent of AI is impacting the asset management industry. This technology enables the optimisation, or even the direct automation, of numerous steps in the value chain, whether it’s documentation, compliance, client relations, market origination or even deal origination for finding new investment deals. It represents an ideal strategic support to reduce the cost, timeframes and margin of error in manual processes, while also providing the necessary material for decision-making based on human expertise.
Streamline operational efficiency with lift-outs
A more sophisticated solution gaining traction is lift-outs, which provide an efficiency-oriented strategy wherein fund administrators acquire operational teams, systems, and data from asset managers or owners, enabling entities to streamline operations and allocate resources more effectively. Lift-outs could also refer to the transfer of costs from GPs directly to the investors where permitted by the fund documents.
Conclusion
As the private equity landscape continues to evolve, managers must take proactive steps to future-proof their funds. Streamlining operations leads to better resource allocation, enabling managers to focus on core investment activities and drive organic growth.
Through strategic partnerships, innovative technology, and an increased focus on operational excellence, funds can navigate uncertainty and position themselves for sustained growth in an increasingly dynamic environment.
