The following article was published in the May edition of Real Deals.
Ipes celebrates its 20th anniversary this year and has grown from a small five-person start-up into a business employing 265 people across five countries. What have been the drivers of this growth?
Our fortunes are linked to those of the private equity industry. If you look at where private equity is now compared to 20 years ago it is unrecognisable in terms of the assets it manages and invests in. It is an industry that has grown exponentially. As the asset class has grown, regulation has also come in and there is more regulatory reporting that funds have to produce. This has also supported our growth, because clients need more support from us. Our journey has been a client-led one.
The business has become one of the first private equity fund administrators to open an office in Ireland. What was the thinking behind that move?
As private equity equity has grown, the impetus has been there for us to broaden beyond the Channel Islands and Luxembourg. Ireland is now our fastest growing jurisdiction. It is effectively an investment in more support for our teams in other jurisdictions. We are based in Cork where there is a good base of accounting skills and where infrastructure costs are attractive. After Brexit there has also been increasing interest in Ireland. There is not a fund vehicle in the country that matches those used in Guernsey, Jersey and Luxembourg at present, but legislation is going through the Irish parliament to put one in place. Ireland has a good regulator, a proactive government and a good track record with UCITS and hedge fund managers, so private equity is the natural next step. A second jurisdiction within the EU, alongside Luxembourg, will be a good thing. It will give managers more choice and introduce some healthy competition.
In a post-Brexit world, what does the future hold for fund domicile jurisdictions within Europe? Is there still a role for the Channel Islands or will Luxembourg become increasingly dominant?
We are jurisdiction agnostic and we are set up to do the work anywhere. We follow the same processes irrespective of where clients are based. Of course there are specific things that you have to do in each jurisdiction, but the systems are very much the same. For fund managers there are different drivers. In most cases you will find that investors are quite conservative and as they invest from one fund to the next as they like things to stay the same as much as possible. That comes into the decision on jurisdiction. With respect to what the jurisdictions offer, some large institutions within the EU prefer a destination within Europe for funds, which has supported growth in Luxembourg. Other managers have preferred to use Guernsey and Jersey. Ultimately, if you look at the numbers, private equity assets under management across all the fund domicile jurisdictions have increased and are still going up. Different managers will continue to want different things from different jurisdictions. There is a place for all of them.
Moving on to the nuts and bolts of fundraising, one thing that GPs and advisers keep talking about is how important it has become to ensure that the fundraising process is as slick and seamless as possible. What support has your industry been able to offer in this respect?
The key thing for getting the money for a fund signed off is around the investor due diligence and anti-money laundering checks. If there is one thing that gets people tearing their hair out it is when an LP is ready to make a commitment but can’t do it because the documentation still isn’t in place. Anything that can make this step as friction-free as possible is very useful for clients, which is why we launched the ID Register. It launched in the summer of 2016 and evolved as we started gathering an increasing amount of information for KYC (know your client). It allows investors to complete a profile, control how their profiles are used, and then use that information across a number of funds without having to complete the KYC over and over again. It is a managed service so the ID Registers are kept up to date, which avoids delays when there are drawdowns and distributions later in the life of the fund. It is all online and it pulls together everything required for the due diligence process and checks. It covers FATCA, the common reporting standard (CRS), client due diligence, sanctions screening and investor reporting. Last year the ID Register submitted 2,600 FATCA and CRS reports on behalf of 1620 reportable entities. The number of profiles has grown from around 8,000 to 20,000 since launch. It is used in the fund closings for existing clients and increasingly, also for other people’s clients. It is an area where we see a great deal of growth in the future.
Finally, I wanted ask why private equity firms have been such active investors in private equity fund administrators?
It is an industry that has a number of the characteristics that private equity firms find attractive. It is a very steady business model. Private equity funds generally have a life of around ten to 15 years, and normally an administrator will be in place for the life of the fund. Long-term contracts with steady income and high cash conversion are exactly the kinds of attributes that private equity firms look for. We can also show growth from private equity growing and regulation, and if you put that alongside the long-term contracts, steady income and cash conversion private equity is going to be interested. It is also worth noting that this is a consolidating sector, so there is a buy-and-build opportunity too.
You can view the original publication here.