The Fund Services Series Episode 3: How employee-owned fund services win

In this episode of The Fund Services Series, Bryan Botha of Ark and Susan Gillick of Standish Management talk about how employee-owned fund services are winning in the market . Bryan Botha also discusses the new Ark fund operations platform that was announced last week.

Chris Gale  00:03

Thanks, everybody, for joining us. This is episode three of the Fund Services Series with Susan Gillick of Standish Management and Brian Botha from Ark PES. We’ll answer any questions at the end. Susan, maybe we can start with you. I think there’s a fair number of people on this webcast who certainly know you well. But maybe you can give us an update.

Susan Gillick  00:40

Thanks, Chris. Thank you for having me. I’m excited to be here today. I’m the president of Standish Management. I’ve been with Standish since it was founded in 2007. So, I’m a founding partner. And before that, I worked at a number of buyout funds in the Bay Area. I’ve been in the industry for about 20 years. Given my propensity towards technology, I’ve always had a technology stack. A lot of people who know me, probably, because of this. I tend to know all the technology solutions in the industry, or at least try to get to know them. A big part of what I do is advise on tech solutions for different private equity and venture capital funds. I’m an expert, but I’m not a user. That’s a little bit of an interesting dynamic. I’ve actually known Brian for probably as long as I’ve been in the industry, dating back as early as our PwC days in New York.

Chris Gale  01:44

Brian, why don’t we start with PwC? Tell us a little bit about yourself.

Bryan Botha  01:48

Thanks, Chris. First, thank you for putting this web series together. It’s great to be back. I’m looking forward to the conversation with you and Susan today. In terms of my career, like Susan said, I started back down the audit track at PwC about 20 years ago as a CPA in New York. My interests throughout that entire time have really remained at the intersection of technology and private equity. Across that time, I’ve worked really closely with many of the largest global fund administrators, advising them on how to get the best return from strategic investments in technology. A key success factor here is, of course, how easily and quickly technology can be adopted for the client service teams who interface with both GPs and LP customers every day. In a very direct sense, technology frequently comes down to the people factor.

Chris Gale  02:48

Excellent. Susan, if we can return to return to you, I think it’s safe to say that Standish has distinguished itself in the market based on the talent that you bring to each client. Can you explain what backs up each of those teams and individuals?

Susan Gillick  03:08

As a firm, we always are talking about how people power our company. It’s all about people, people, people. We’re a professional services firm that utilizes best-in-class technology to do our jobs well, accurately, effectively, quickly – that’s really critical. One of the things that we’ll probably touch on at some point today is maintaining those folks and keeping them in their seats and employed and happy and growing and learning at Standish. We use technology to do that for them to help them, to make sure they have the right solutions. Internally, we’ll talk a little bit more about client-facing concerns later, having those solutions internally so that they’re not spinning their wheels, not spending their time doing work that is not value added, and making sure that when there’s a process that they’re performing, that doesn’t seem to be done in the most efficient manner. We have a big culture in the firm of recognizing when things just aren’t quite going as well as you think.

Here’s an example. So, I sit in our Boston office, and for the longest time, right outside my office, is one of our two copiers. It’s significant that it’s the subpar copier, too. It’s the one you use when the other one is busy. The other one is this big industrial copier that does everything it prints in color perfectly. Everyone loves it. So, I noticed one time that everyone was outside my office using the copier. It kind of gave me pause, “What’s going on?” I go out and I ask, “Why is everyone using this copier? Is the other copier broken? Okay, well, how long has it been broken?” It had been broken for two weeks. Did anyone think to maybe mention that the computer was broken? Essentially it’s kind of a silly story. But if something doesn’t seem to work properly, you should fix it, or at least make an effort to fix it. I think that’s critical. We definitely have that in our culture.

I can even go back to when Brian and I first met, just to keep talking about us. I was working at a private equity firm, and I was fairly new to the firm. I was the controller, and we did our first capital call. I was told, “The way we do this is, we print out the notices, and then we stand at a fax machine and fax them out.” I thought that was crazy. It’s 10 o’clock at night. I’m literally the only person in the office. The next morning, I walked into our CFOs office, and I said, “We need to buy technology.” That’s when I met Brian for the first time. He sold us our very first piece of software, which was wonderful. Having a culture of innovation and making sure that we are giving our people the right tools to do their job in the best way can have many different benefits. For me, the most important benefit, aside from excellent client service – you’d think I’d say that was one – is keeping our people engaged and happy and wanting to come to work and wanting to provide that really good client service. Without that, we’re just another fund administrator.

Chris Gale  06:33

That’s wonderful. Can you tell us more about how Standish does it, in particular, with LP platform technologies and customization? What’s the standard approach to technology?

Susan Gillick  06:48

I think the way that we think about it is a bit different. A lot of our competitors have their own technology stacks that they deploy across all their clients. There are benefits to doing it that way. It’s much more efficient for them, they’ve got people working in the same environment, it’s easy to train. There are a lot of benefits for the fund administrator doing it that way. Our approach is a little different. As I mentioned, we actually think it’s much more important to have the right technology for a particular client. That could look very different from one client to another. We spent a bunch of time upfront. We have an entire team where standards are their actual job. They evaluate what the needs of the client are. They recommend different technology solutions.

Usually, from our perspective, it starts with an LP portal. All of our clients have an LP portal. There are a number of other providers out there who do this and do it very, very well. But there are other things, right? They might be absolutely in love with a particular CRM system and don’t want to give it up. So, we find ways to integrate these solutions together, or at least make them work as effectively together as possible. It’s not always the easiest thing, but this is a big value add that upholding standards provides to our clients. Maybe we’re not the most efficient firm at the end of the day, but we are trying to make it so that our clients, as I mentioned, have the best solution for them. That’s not just a one-time exercise. It evolves over time. They raise new products. They want to go into hedge funds. Or they don’t have a credit function. It evolves and we’re constantly working with them to make sure that they have the right solution.

Chris Gale  08:34

Wonderful. Let’s ask Bryan about Susan’s point on talent.

Bryan Botha  08:59

Susan, you touched on a couple of different things that I want to pick up on. One was that there’s been an evolution of the technology in the space that we work in – private capital markets and, more broadly in private equity, for both GPs and fund administrators that are helping those GPs do all the things that they do for them. Going back 20 years to the fax example, everybody was pretty much doing things in Excel back in those days. Then the first kind of software players that emerged offered partnership accounting as the backbone. More and more of these firms showed that they could automate and improve a lot of the things that were being done manually. Then a lot of the other stakeholders at the funds – the investor relations team, the middle office, the deal team, the portfolio management team – all wanted to track more and more data to figure out how to use that data in a way that could be strategic for decision making. What happened was a lot of those first early adopted solutions built a bigger and bigger and more complex mousetrap to handle other deal teams, and other constituencies. That worked for a while, but I think they reached their limit when a GP is trying to get an investor portal, and they also must switch their CRM system just to get an investor portal. That’s where, you know, things may have gone too far.

Today, the growing trend is the opposite. It’s a very focused type of solution that’s fit for purpose. If you’re talking about subscription capabilities, there are a lot of vendors out there that have come out in the last few years who are solving what was a very manual and paper-intensive process to have investors subscribing to the fund, whether it’s GP carried interest calculations, or cap table management, or valuations of the portfolio companies. Or, you know, there are use cases that have been neglected in a lot of ways and have been remaining manual for far too long. The solutions that are emerging are fit for these particular needs. But they’re also building plug-and-play capabilities and other best-in-class solutions rather than trying to build everything themselves and becoming like one vendor for every GP or every fund administrator. That’s where I see the evolving trend in the software space right now.

Chris Gale  11:38

Can I touch on that? Can I ask you to say more about the plug-and-play? I hear Susan talking about talent and making things easier for talent. How does plug-and-play or API fit into that?

Bryan Botha  12:02

Absolutely. It’s really important that when you’re picking a solution – now that there are so many great solutions out there to pick from – that it’s going it’s not going to silo the data in that solution. You want to be able to, for example, take the back-office data that’s great for financial reporting, which would be also useful for the deal teams to know exactly what their exposure is to the existing investments and how much they should follow on from to get IRR and performance information, and take that information and give to the entire organization for all the different stakeholders that might be able to benefit from it.

It’s really important, when you’re looking at solutions, to make sure that capability is built in. A lot of these solutions now do, in fact, do that. When Ark was being created and built from the ground up, a lot of different folks out there were already using off-the-shelf general ledger tools like QuickBooks, Xero, and Sage. We designed Ark with the intention that we would be GL agnostic. So regardless of what kind of GL, GP, or fund administrator you’re using, grabbing that data from their existing GL was important for us rather than trying to tell them, “Oh, you have to abandon your GL and go with something else.” We have to meet our clients where they are and let them benefit from what’s working and make things better. That also cuts down on the implementation when things can plug and play easily. Data can flow more efficiently and seamlessly between the different stakeholders in between the different tech stacks in place.

Among a lot of these institutional LPs, PDFs are also still the common format for quarterly reports that go to the LPs on these investor portals. But more and more of these sophisticated institutions, pension plans, endowments, etc. have their own systems. They don’t want to necessarily get it in a PDF. They want to grab that data and plug and play it in their systems. Another aspect of the Ark solution is to make sure that we can let stakeholders download that data to Excel, download it to CSV, completely digitize the PCAP or the capital account statement so that when an investor is looking at their allocations throughout the lifecycle of the fund, or their performance of the different funds with that GPU manager that they’re invested with, they can get that data and do whatever they need to do with it very quickly and easily.

Chris Gale  14:54

Excellent. I want to go back to come to you in a moment and ask about employee-owned fund services. That market is evolving underneath us right now. There are a lot of headlines, too. But before I do, Brian, how do I, as a potential customer of a tech solution, put that tech solution on the spot during a demo, for instance, to see how it plugs and plays? Are there certain signals that indicate how configurable or nimble the solution actually is?

Bryan Botha  15:45

I think it comes down to the existing tech stack that you’re using, right? If you’re talking about an investor portal, for example, you’ve got some solution that’s helping you automate and digitize the whole subscription process, the uploading of the passport by the investors and the KYC and AML, checks and deconstructing the entire LPA or subscription agreement into a DocuSign double format. Now that that’s completed, and the investors are in the fund, they’re going into the investor portal for the life of the fund to get their quarterly reports, their tax information, etc. Having the investor, you know, go back and re-upload all that information to get that data into the next solution is, not a winning situation for anybody. It’s really important that the e-subscription service talks to the investor portal and they can pass along the data that’s already been captured so that it’s a seamless and better experience both internally and externally. Investors want to be able to see a lot of that rich detail on the portfolio companies when they go into the portal. Sometimes that can be a flood of too much information, however. They might just want to get capital and distribution statements and be done with it. There’s no one size fits all with this stuff. As you’re taking on another solution, or trying to automate a piece of what today is manual, you really have to think through, “What are the inputs? What are the outputs from that widget that you’re adopting, to make it work seamlessly with everything else that’s already in place?

Chris Gale  17:43

One small part of that is if someone, especially a client or an LP, has to reenter data. That is a sign that it does not plug and play, and there’s a problem.

Bryan Botha  17:54

That’s one very obvious sign.

Chris Gale  18:07

There are a lot of headlines today about disruption in the markets. What are you seeing from the fund services perspective?

Susan Gillick  18:27

There are a number of things that are happening right now. Talking headlines, there are two things, from my perspective, that impact our industry. One is the rising cost and scarcity of talent, which I think is being felt across the entire industry. It’s a really good time to be an account. The other thing we’re seeing a bit as the interest rate environment changes is that we’re in a recession or entering a recession. The fundraising market has softened a little bit, especially for new emerging managers. It’s taking longer to go to market. And we’re still not seeing as much flow from our existing clients. Blue-chip names are not having as much trouble but they’re still slower.

Everyone thought we were really kind of foolish to start in the 2000s but a lot of GPs who are now our clients took a hard look at their cost structures and outsourcing to a fund administrator made a whole lot of sense. As we enter that same market again, we’re seeing that trends can reappear whereby there are funds that are now doing all their work in-house are now thinking about ways that they could alleviate some of their talent crunch by supplementing with fund administration. That’s turning out to work pretty well for us. That’s the biggest thing for us.

Retaining talent is still, as I mentioned earlier, our number one priority. Even though our cost structure is going up significantly, one thing that we try not to do is pass all of those costs onto our clients. We are seeing price increases that, in the Big Four, are pretty prevalent right now. One of the things that we always do when we see the labor market tighten is we then try to find additional technology to supplement the labor that we need. Our team is very focused on putting technology in place to help make their lives better. I have a client who called me six months ago and said, “Hey, we’re raising a new fund. We’re probably going to close in the next couple of weeks. I need you guys to onboard it into our system.” Sure, no problem, I said. This is what we do. No big deal. But what that process involves is, we need to then get all of the subscription documents from the firm through their lawyers. These are static documents in PDF form. And we need to pull out relevant data that is important to us, for example – name, tax ID, all those things. Historically, that was a manual process. We would have to go through every single document, put it into a spreadsheet, and upload it into the portal. That’s what we’ve always done.

Then my client dropped the bomb on me. They said, “We have 1,100 LPs.” I kind of took it in stride. It was a little bit uncomfortable. It’s a lot of LPs. Usually, it’s, like, 80. So, 1,100 is significant. I called up the head of our onboarding team and very gingerly explained to her that this is going to be coming down the pipeline, and that we were going to need to get it done within a week, which really wasn’t possible unless we worked around the clock and pulled resources from everywhere. She was unfazed, completely unfazed, because what I learned next was that we had recently licensed a software solution that pulls data out of PDFs into any format you want. You just have to check it. What would have taken hundreds and hundreds of man-hours to less than 10.

Chris Gale  23:19

That’s a wonderful example, The other thing I wanted to ask was about implementation fees, customized setups for technology, and whether you know how to avoid friction in the process

Susan Gillick  23:47

I’ve been using the term API for years and, literally, yesterday I had to look up what it meant. I’m reading it now off my wall. It stands for Application Programming Interface, which I probably could have figured out if I had given it some thought, but Google works really well. We have the right technology stack for our clients. That often means a bunch of different solutions. One of the things that we love about ARK and others is they have what is called an open API, which means that you can then plug in different technologies. Sometimes it’s even just Excel. Having that ability is a game-changer. A lot of vendors that we’ve worked with in the past are very against using different providers. They thought that they could do everything, but they just can’t do it all well. I think that’s a big challenge that we’re facing when you’re working with a big firm. Drilling down on that’s important. The other thing that I think is really critical is how we can scale. Being able to scale different technologies is really important.

Chris Gale  25:28

How about implementation fees and speed of customization?

Susan Gillick  25:40

On implementation fees, the way it’s been done up until fairly recently is, does it cost a fortune? Does it take forever? It may or may not be right. Just talking about pain points is extremely frustrating in that sense. One of the things that we look for when we’re talking to different providers is, “How quickly can you get us up and running? I don’t have three months. I certainly don’t have a year, and I’m not going to my client, and our CFOs are not going to their GPs and telling them that in order for us to implement this solution, it’s going to cost you know, a quarter of a million dollars, a million dollars, or sometimes upwards of that. Brian mentioned this point in one of the other series. It’s not just the implementation fees. It’s the ongoing fees. If one of my clients wants to add a line to their PCAP, I have to go back to their team, I have to pay them a few shekels. And it still takes a week to add a line with newer technology solutions that we’re using. Now, we can do that in-house. Self-service is a culture that I think this generation is used to and wants to be able to do themselves. So that works really well for us, we’re able to make these changes on the fly. It’s a game-changer. Honestly, going back five years, it was so frustrating to have to constantly work with professional services and vendors.

Chris Gale  27:22

That’s wonderful. It seems like the level of ownership at Standish drives technology adoption that’s aimed at the owner/user within Standish. Is that potentially something that someone looking outside of Standish might think they are seeing?

Susan Gillick  27:51

I would definitely say that’s the case. Think about it this way. One thing I didn’t mention, but probably not too many people know is, Standish doesn’t have a salesperson among its ranks at all. That’s not a job here. The culture – not to make this a sales pitch about my firm – is very collaborative. We have a common goal because most of us are employee-owners. Technology, making sure that we have the right tech stack in place, and creating all this efficiency means that we can grow at a very fast rate without sacrificing quality and efficiency, and more importantly, employee morale. We don’t want our folks working 80 hours a week. We don’t even really want them working 60 hours a week. We’re going to give them tools to make sure that their work is manageable. Their learning. They can get promoted. It’s a very big Ford model. We want to hire people at the most junior levels and train them. As they become proficient, they get promoted. I sat next to a woman last week. We did a training event out in Palm Springs. She was a director trainee. I looked at her and said, “You might be the only person here who started as an associate.” Her answer back to me was, “You guys taught me and gave me all the tools to move through the ranks quickly.” That’s how we’re going to be successful, in my opinion.

Chris Gale  29:29

That was awesome. We have one question about Standish embracing technology. Does this impact the firm’s current risk management? How do you strengthen quality control to manage the risks from automation or system development?

Susan Gillick  29:57

That’s a really good question. Again, we look a lot like a Big Four firm. That means we have teams of people at various levels. We have doers and reviewers. We take a risk-based approach to everything that we do. There are multiple levels of review built in, especially when there are manual processes involved. But we’re moving away from as many manual processes as fast as we possibly can, but some still exist. When we can put technology in place, it eliminates at least one of those levels of review, because we have trust in the information and the data that’s coming out of the solution that were deployed. It frees up a bunch of people to do different things, and I think it lowers our risk profile significantly. We don’t want people keying things in. They’re human. That never works. When we can put technology in place, it really lowers the risk profile for us. It’s all about managing risk. We’re not perfect. We make mistakes. But we don’t make big mistakes. I think that that’s the key. If we start to make big errors and our quality decrease, it’s because we’re just growing too fast and don’t have the right solutions in place. All of that word-of-mouth referral, which again is how we get business, dries up and our growth slows down and we’re not as attractive anymore.

Chris Gale  31:26

Thank you both Susan and Bryan. Thank you, everybody, for joining us. We’ll be following up with you.

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