Private capital needs human resources—could new operating models, plus an industry-wide focus on education and training, be the answer?
Finding and keeping the right people in private market fund administration has become increasingly difficult in recent years.
That view is shared by general partners polled for our Future Private Capital CFO survey, who said the greatest challenges in retaining talent and institutional knowledge are in IT and reporting (51% of respondents) followed by finance and accounting (25.5%).
The Covid-related “great resignation” made recruitment and retention more difficult and contributed to spiralling wage demands. However, a more fundamental and long-term resourcing problem is taking shape in the private capital industry, as fund growth and ambition outstrip the available talent.
To meet that challenge, a new approach to education and training will be required, alongside more creative fund operating models.
The evolving private capital industry
To some extent, private capital is a victim of its own success. The industry has grown so quickly that human resources departments have struggled to keep up. Asset managers are opening more funds more quickly, and asking more of administration, accounting, compliance, and IT teams.
At the same time, vanilla private equity fund managers have diversified to offer more sophisticated multi-asset strategies including private credit and real estate. Private credit has proved hugely successful over the past few years, but it’s a complex asset class that requires specialist talent and technology to run effectively. This is where the challenge lies.
There’s a mismatch of people and skills. Whether in technology, compliance, or accounting, the competition is fierce for people with technical skills and systems experience who also understand private markets.
Technology is a partial answer
Technology certainly forms part of the solution to that challenge. Automation (and now artificial intelligence) can ease workloads and give human teams the freedom to focus on high-value tasks.
Technology, however, creates its own people problem in addition to high entry and maintenance costs. It needs to be implemented, managed, and maintained. It needs to be tailored to the needs of a particular fund. It needs to be updated to meet the requirements of an evolving private capital landscape. All of this takes human expertise and experience.
Also, private capital is still, at its core, a people business. If an investor payment gets stuck in the system because of a compliance red flag, the relationship between a fund’s operations team and bank relationship management and compliance staff will be crucial in quickly removing the blockage.
A three-pronged solution to the talent challenge in private capital
What can the private markets industry do to create the talent pool it needs? We believe the process requires a more flexible operational model coupled with a holistic approach to training.
- A partnership model: Small and mid-sized funds tend to employ small operations teams, so staff turnover can be highly disruptive. Outsourcing some of these functions as part of a long-term partnership is an increasingly common solution. In this co-sourcing model, an outsourcer sends employees into client offices to learn their systems and processes and build relationships. The same people then work remotely as an extension of the fund’s in-house team. This level of familiarity allows the outsourced resource to play a full part in complex private market fund administration. It also allows the fund manager to leverage the technology and continuing education programs provided by the outsourcing partner.
- A global workforce: Private market managers tend not to mind where back-office work gets done, as long as it’s done to the highest standard. While there may be a shortage of fund accountants in some jurisdictions, private markets are a popular choice for graduate accountants in India and elsewhere. Fund managers who are prepared to outsource these roles benefit from a global talent pool.
- Education and training: Government, education providers, and the funds industry need to come together to make sure trainees have the foundational skills they need to pursue a career in private markets. This is already beginning to happen. In the Channel Islands, Jersey Finance is working with the island’s government and industry to roll out industry-specific training. In India, private training providers are collaborating with private market companies, including CSC, to make sure graduates have the specialized skills they need for private equity and credit roles. Further, service providers will need to ramp up continuing education efforts to keep their workforces at the forefront of industry best practices.
We have reached an inflexion point in private capital where the availability of talent can no longer be taken for granted. Better training and new global fund operating models are urgently required.
For the complete picture, download The Future Private Capital CFO.
Why CSC?
CSC provides tailored administration and strategic outsourcing solutions to support the complex operations of alternative asset managers across jurisdictions and asset types while adhering to global regulations and compliance. A market leader working with funds of all sizes, we’re the trusted partner of choice for 90% of the Fortune 500® and 70% of the PEI 300. Privately held since 1899, CSC is a global company with capabilities in more than 140 jurisdictions. We’re capable of doing business wherever our clients are by employing experts in every business we serve. We are the business behind business®.