– Not a Private Equity Fund Administration “Conveyor Belt” Process David Bailey MSI

Private Equity Fund Administration – Not a
“Conveyor Belt” Process
David Bailey MSI
Augentius Fund Administration
1st November 2006
1.
Introduction
2.
Revision (and test!!) from previous session
3.
Private Equity vs. The Rest
4.
Private Equity Fund Processes
5.
Questions
Why me?
 Settlement and Global Custody
 5 years in Luxembourg as a fund administrator – Long
Only Funds/Hedge Funds/Funds of Funds/Emerging
Market Funds etc.
 Funds Product Manager with Management Group –
Hedge Funds
 Ansbacher Fund Services in 2002 – closed down
existing Administration business and created specialist
Private Equity Fund Admin Business
 Completed MBO of Ansbacher Fund Services in August
2006 and re-named business Augentius Fund
Administration
Augentius Fund Administration LLP
 Specialist Private Equity Administrator – its all
we do
 1st Jan 2003- no clients, no name, no reputation
 1st Nov 2006
- 20+ clients
- 75+ funds
- 120+ entities
- €15bn committed under
administration
 Offices in London and Guernsey; 40 staff
increasing to 50.
PE Fund Structure
German
adviser
French
adviser
Italian
adviser
Advisers
German
Executives
Manager
Guernsey
Co
UK Co
General
Partner
UK
Executives
KG
French
Executives
Italian
Executives
General Partner
(Scottish Limited Partnership)
Investors
Investors
General Partner
General Partner
LP I - ERISA
(English LP)
LP 2 - Non ERISA
(English LP)
PE Fund Structure - Simple
Manager
Management
Agreement
General
Partner
Carried Interest
Partnership
Limited Partnership
IHC
IHC
Portfolio Companies
Investors
PE vs The Rest
Private Equity Funds
Other Funds

Closed Ended

Open-ended

Partnership

Corporate Structure

Multiple closings within first 12 months requiring
“Rebalances” (equalisations)

Ongoing subs and reds

Quarterly Financial Reporting

Daily/Weekly/Monthly valuations

Individual Limited Partner Reporting
- with special arrangements for some LPs

Fund NAV

Assets Valued by Managers – but no trading

Assets valued by Administrator – independent

Highly complex structures including co-investment
opportunities

Generally straightforward structures

Minimal cash balances and no stock to lend

Substantial cash balances with large portfolios to
lend

Just docs to hold in safe-keeping

Custody/Prime brokerage
relationships/reconcilliations

Complex accounting issues requiring considerable
expertise

Complex valuation issues
Private Equity Fund Processes
 Initial Closings
 Rebalances
 Drawdowns/Investments
 Quarterly/Annual Accounts
 Distributions
The Closing Process
• AML/KYC on LPs – either the administrator or the GP
• Side Letters/Special Arrangements
Negotiations
Revised LPA – most favoured nations
• GP to consider/approve LPs and scale back?
• Board Meeting to approve LPs
• Initial Drawdown for Management Fees and Expenses
and “Welcome” letter
The Rebalance (Equalisation) Process
Carried out on subsequent fund closings to “true up” all investors
as if they joined the fund on Day 1
• New Investors
Pay interest for “late arrival”
Contribute share to investments made
Pay arrears of Management Fees
To equalise to
Day 1 of the Fund
Pay arrears of Expenses
• Existing Investors – receive distribution of funds received from new
investors to equalise
Drawdowns/Investment
Private Equity
1. Instructs
Administrator to
generate drawn down
for £x m
4. Instructs
administrator to
pay away £xm to
cover cost of
investment
Read only access
to bank account
6. Funds remitted to
settle transaction
Fund Bank Account
5. Banking
instruction to remit
funds to settle
transaction
Augentius Fund Administration
2. AFA issues drawdown
notices to a total of £x m
across LP’s, Calculated
on a commitment basis
LPs/ Investors
3. LP’s remit a total of
£xm to fund bank
account to cover
drawdown
Quarterly/Annual Accounts
There are no industry standards – everything thing is
personalised to each client – their own look and feel
• Full Fund accounts issued every three months
- Balance Sheet
- Profit and Loss
- Cash Flow Statement
• In addition, individual Partner Statements
- Capital Account
- Income Account
- Loan Account
to reflect each LPs individual share of partnership assets/liabilities/
income/expenses
• Other issues – Consolidation with Co-Invest schemes
Distributions
7. Carry paid to
vehicle
Private Equity
Read only access
to bank account
1. Advice of pending
sale generating
distribution to LP’s to
AFA
3. Advice of
amount due to
each LP plus
amount of carry
4. Proceeds
received from sale
of portfolio
investment
Fund Bank Account
5. Automated banking
instructed issued re payments
to be made to LP’s and carry
payment
Augentius Fund Administration
2. Calculations of
proceeds due to each LP
and carry & advice of
pending distribution
LPs/ Investors
6. Funds remitted to
individual LP bank
accounts
David Bailey
Managing Partner
t +44 20 7089 4733
f +44 20 7089 4744
e [email protected]
Augentius Fund Administration LLP
Two London Bridge
London SE1 9RA
United Kingdom
www.augentius.com