The end of summer conjures thoughts of cooler weather, coming holidays, and the inevitable race that is tax and audit season. In our recent webinar, The Fund Managers' Guide to Busy Season, a panel of experts explored numerous topics—the intersection of talent and technology, communication with investors, how AI is already reshaping firms—to look for lessons fund managers can apply now to have a better busy season.
Here are three insights from our webinar featuring Juniper Square’s Derek Shanahan and Adam Walker, Esther Chiang of Paul Hastings, and Phillip Snyman of KPMG.
New private funds rule means an uptick in reporting requirements
In short, the new rule prohibits SEC-registered investment advisers from outsourcing certain functions to service providers without meeting minimum communication or reporting requirements-a much larger and extensive set of requirements. That, in turn, likely spells more work-think increased quarterly reporting obligations, for instance. The new SEC rule is slated to start taking effect this October, with an expected 12-month implementation period.
Chiang suggested that advisers start thinking now about how to prepare for it. Further, she warned the SEC has issued enforcement against inside venture partners relating to the calculation and posting of investment period management fees. So, it’s important to remain diligent-especially during busy season-to ensure calculations are done consistently across funds.
More communication could mean better relationships
Sudden changes in the market, black swan events, and SEC rulings can, among other things, create the need to communicate with investors and other service providers—such as CPAs or lawyers—quickly and directly. Acknowledging the critical role effective communications play in maintaining LP relationships, operational efficiency, and managing the busy season, the panel agreed traditional newsletters and alerts may not be enough to distribute information as effectively as needed.
Summing up the importance of efficient, effective communication, Walker offered four tips:
Plan for it. Create a framework and define roles, making sure everyone knows who's doing what at any given time.
Communicate early–well before busy season–and often.
Make it an ongoing, year-round activity–not a one-and-done task.
Follow-up with investors and service providers for input on how the season–and the communication–went.
In short, being thoughtful about the entire process from beginning to end can create efficiencies now and better relationships for years to come.
Innovation at the intersection of people and technology
In the aftermath of the pandemic and what’s now known as “the big resignation,” many organizations struggle to keep staff on board. Walker pointed out that the human capital component in accounting, for example, is more important than ever, and with universities reporting a decrease in accounting students, most businesses stand to feel the effect.
Could AI step in to fill the staffing gap? If so, how could it impact fund management, data consumption, and managing governmental regulations?
In the conversation that ensued, Chiang expressed AI as an equalizing tool that helps people do their jobs better and tackle “the most time-consuming, repetitive human works, like subscription book processing, generation of MFN compendium, or LP transfers.” To keep pace with innovation, Chiang said the innovation group in her firm has had to transform itself into something akin to “technology consultants.”
Thinking of potential governmental regulation, Chiang shared that SEC chair, Gary Gensler, seems to hold a neutral position on AI, welcoming the opportunity that it could level the playing field for capital markets, according to his recent speech Isaac Newton to AI.
Snyman noted that generative AI uplevels data visualization, text, and other outputs, offering better quality audits and a more precise view of risk. He added while AI is a “massive shift” in the industry that holds promise, it may come with risks. “I don't think we've ever seen anything be adapted and adopted this quickly. We have multiple people spending the majority of their time investigating how it can be used, whether it should be used, what the legal complications around it are, and what's being stored where. There are a lot of unknowns around it that people have to be aware of.”
When it comes to innovation, AI, and data structures, Snyman said, “Structured data is a basic imperative to the audit process.… It's critical to understand the interconnectedness of data, the flow of information, and to be able to consume that information structure.… As we evolve industry routines–especially around AI, more focus on unstructured data and other forms of data that we consume will allow us to make better decisions that are more risk-based.”
So how can more traditional accounting firms, for instance, harness new technologies and innovations? By understanding how internal stakeholders, investors, and auditors, among others, consume data. Simply by understanding their unique needs.
View the full on-demand recording of The Fund Managers' Guide to Busy Season now.