Accommodating the growing complexity of private equity funds

Learn how system digitization is helping service providers run even the most complicated data calculations quickly, accurately and with reduced risk.

The intricacy of today’s private equity fund structures places significant strain on service providers to process data and run calculations. Layers upon layers of complexity can often result in delays, inefficiencies and complications for clients – but a new technology approach is helping to solve many of these back-office pain points.

In this article, we’ll explore how a game changing undertaking to digitize private equity fund systems can provide you and your investors with more robust data more quickly and more efficiently.

The need for a new solution

Service providers have taken a variety of approaches to handle the demands of complex private equity funds. Many times, they look to automated vendor solutions, but these instruments aren’t well designed to accommodate all the necessary variables. Different tools have different strengths and weaknesses, but even the most flexible options can still demand a lot of manual intervention.

“Even the best tools available require a large internal team to constantly write, rewrite and maintain all the rules,” says Diego Lopez, head of vendor platforms for U.S. Bank Wealth Management and Investment Services. “When things change, these teams have to go in and change the models. And the moment there's a new fee convention or a new calculation and our vendor system can’t handle it, we have to go back into Excel. And now we're in Excel for the rest of the life of the fund.”

As clients continued to require more and more complex reporting, it became obvious to the leadership team at U.S. Bank that existing options would always significantly limit our ability to provide exceptional service to them.

“Ultimately, we realized the only way to have real control over our operational efficiency was to implement our own digitized system where we control the code itself.”

Private equity digitization: a better way forward

At U.S. Bank, the client experience is always our highest priority. Recently, bank leadership put in place a team of a dozen or so experts – located in both the United States and abroad – to build from the ground up a flexible, digitized solution to store, manage, calculate and report data for complex private equity funds.

“This whole effort really centered around owning the core code – being able to open up the system, enter whatever logic we need, whatever new calculations we need,” says Diego, “so that in a very quick manner we’re able to turn around these things for clients.”

The team took the process of striking a NAV, broke it into its component parts and built a series of independent, vertical calculation modules – each with unlimited flexibility – where the end result of each module would channel into the next.

“Each module is self-contained, so we have unlimited flexibility to modify it. And each module produces an end result that gets fed into another and so on. This way, each vertical can get as complex as it needs to without putting the entire algorithm at risk. The core algorithm keeps its simplicity and structural integrity because you’re not layering in all this extra logic.”

U.S. Bank will roll out this solution in an iterative fashion throughout 2023 for a completely seamless enhancement to clients’ existing data management and reporting.

“We’re trying to expose all this extra data so it’s available as needed. And as we continue to refine this process, our goal is to be able to instantly reflect customized solutions for clients – and that really becomes a gamechanger. Of course, we’re still working to get there, and we have to manage that process. But eventually, this really does become a gamechanger."

Read more: What goes into private equity fund calculation?

At U.S. Bank, we understand the value of partnering with a trusted third-party administrator to help you achieve your business goals, and we have the expertise and resources to support your private equity growth. To learn more about the comprehensive fund administration services offered at U.S. Bank, visit usbank.com/globalfundservices.

If you’d like more information about our PE digitization rollout, please contact our team. Additionally, be on the lookout for more information and articles on the subject throughout the year.