From Ocorian

North American mid-market private equity and venture capital firms have been increasingly turning to third party providers for a range of fund administration services and this trend is only set to continue over the next two years according to new research from Ocorian, a leading US and global asset services provider (please see the attached press release).

Over the past two years, almost half (47%) of US and Canadian venture capital and mid-market private equity firms say their use of third-party providers has increased across the fund lifecycle. A further 44% say it has stayed the same, and only 9% say it’s decreased over the last three years.   During this time, almost three quarters (74%) of those surveyed say that their use of third-party service providers for investor onboarding and ongoing investor services has increased significantly, with a further 14% saying this has increased slightly. This is followed by 44% who have significantly increased their use of third-party providers for fund accounting and financial reporting, and 38% who have significantly increased their use of these services for ESG data and disclosure support. 

The study with senior US and Canadian executives at mid-market private equity and venture capital firms responsible for $335.25 billion assets under management shows use of third-party providers is set to increase further in the next two years, according to more than eight in ten (81%) respondents. Just 19% said their firm’s use of third parties across the fund lifecycle will stay the same.

The trend is reinforced by recent industry research from Preqin, which found that over a quarter (27%) of GPs are considering switching their current fund administrator in the next 12 months, with errors and rising costs cited as the top reasons for making a change. This willingness to replace incumbent providers underscores the importance of service quality, technological integration, and operational efficiency: all areas cited as key decision-making drivers in Ocorian’s research.

When selecting third-party service providers, particularly a fund administrator, respondents said that an innovation roadmap and being highly responsive to emerging tech trends is the top technology-related factor in their decision-making process. This was followed by the level of automation providers could offer, followed by a proven investment in cybersecurity infrastructure. 

The ability to integrate with internal systems and platforms was the fourth most important technology-related factor in firms decision-making processes, followed by the use of AI and machine learning to enhance service delivery and analytics. In sixth and seventh place respectively were the level of dashboards and visualisation tools offered for fund performance and investor data, and finally the quality of the bi-directional workflows.