06Jun

When managers of private equity funds changed service providers this year, cost, quality and increased portfolio complexity were typically behind the decision.

Preqin, a leading source of data and analytics about the alternative assets industry, says this year’s unusually challenging environment is prompting fund managers to more intensely evaluate their service providers. The relationship between cost and quality of service is being scrutinized especially closely.

“Managers,” Preqin comments, “Want service providers that can make a difference, whether that’s through streamlined processes, increased efficiency, or the adoption of innovative and value-add technologies.”

In a report out last week, Preqin discusses the results of its analysis and survey of fund managers. The short version is that among those changing law firms or accountants cost was the leading reason. Or, as Preqin described it, “Cost is king.

“Half of all fund managers surveyed cited cost as a reason for swapping their fund formation law firm, followed by 44% and 40% for transactional law firms and accountants respectively.”

Cost wasn’t the only reason. Portfolio complexity was mentioned as often as cost for changing fund formation law firms. And it was second behind cost as the reason for changing accountants.

Quality of service factored into the decision, though it was less of a driver than cost and complexity. However, among the 26% of private capital fund managers that changed administrators, the quality of service was a deciding factor. 53% mentioned that as a reason for making a change. Only one in five managers mentioned cost.

Preqin sees the issue for administrators as one of technology.

“From due diligence to investment monitoring and real-time reporting to LPs, processes across the alternatives universe will be streamlined and improved. Those service providers that fail to embrace emerging technologies will fall behind,” says Preqin.

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In a sponsored Q&A with Tim Toska, global head of private equity at service provider Alter Domus, he talks about some of the unprecedented challenges private equity managers confronted this year, not the least of which was trying to build relationships remotely. Working remotely has demonstrated the critical importance of technology to fund managers.

“If you’re working remotely, you’re not able to handle everything, so having a strong service provider allows private equity managers to really focus more on the critical areas of their business,” he says.

In a second sponsored Q&A, this one with Nikolaos Perros, head of private equity at Citco Group, he makes the argument that after weighing the need to invest heavily in technology, many fund managers have chosen to partner with administrators that have already done that.

Cybersecurity, data conveyance and access to a digital portal to replace paper-based processes are the capabilities fund managers most need. “To deliver on these three aspects, as well as help firms evolve in a digitally driven world going forward,” Perros says, “Intimate technology expertise is a must for fund administrators.”

Photo by Ishant Mishra on Unsplash

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Jun 6, 2023

Banks Struggle to Contain Expenses In Face of Wage Growth

Squeezed by low interest, constrained by competition from raising prices and facing shareholder pressure to improve returns, the banking industry is struggling to control costs while labor shortages and public sentiment is pushing for higher wages.

American Banker says the $56.7 billion banks spent on salary and benefits in Q3 last year was 18.4% higher than in 2014.

Those expenses are expected to rise even more this year, as industry leaders prepare to hike their minimum pay. The Bank of America is raising its minimum $17 an hour wage to $20 by the end of this quarter. JPMorgan Chase is raising starting pay about 10% to at least $15 an hour and up to $18 depending on the market. Bank of New York Mellon already raised starting pay to $15 an hour.

Wealth management firm Janney Montgomery Scott estimated that non-interest expenses for some 100 of the nation’s public banks would rise 3.64% this year, much of the increase due to compensation costs.

Christopher Marinac, director of research at the investment firm, told American Banker, “Can you also attribute [the rise] to salary increases? I think you can.

“Banks have to be thoughtful about what they’re paying employees. … It’s easier to pay workers slightly more — give them an increase or a rate change or change salaries — because it’s expensive to replace them.”

Like most industries, financial institutions have found it tough to recruit workers. A report last fall from the accounting and consulting firm Crowe Global said recruiting and retaining workers, especially younger workers, was a challenge for most banks. The cause, said Crowe Global, was pay, which, according to the firm’s survey, averaged $30,000 for entry-level positions.

With almost half of all bank employees over 45, the industry has been forced to raise starting pay to attract entry-level workers.

That’s made reining in costs difficult, given that wages and benefits accounted for 59% of banks’ total non-interest expenses last year.

As James Chessen, chief economist at the American Bankers Association, told American Banker, “This is a tough situation for banks and all businesses, managing expenses when it’s hard to raise the prices of the goods you sell.”

Photo by Dmitry Demidko on Unsplash

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Jun 6, 2023

Influencer is the Hottest New Marketing Career (Sample)

When the pandemic hit and Americans hunkered down, spending on essentials and entertainment, but on little else, brands naturally cut their marketing budgets.

One area that survived was social media influencers. After dipping slightly at the outset of the quarantine, social influencer spending quickly returned to pre-COVID levels. Meanwhile, other advertising, including digital, continued to decline so much that 7-in-10 CMOs have seen an average 19% cut in their marketing budgets.

From an almost accidental niche specialty, influencer marketing has become a big part of digital marketing. Spending on social influence was estimated to hit $9.7 billion this year.

Marketers report that for every $1 they spend on social influence they earn an average media value of $5.78. No surprise then that influencer jobs have become one of the hottest new marketing careers. By virtue of the relationship they’ve established with their audience, social media influencers can introduce their followers to a new brand, or boost an established brand’s sales simply by posting about them.

Until recently, influencers didn’t see what for many began as a hobby as a career. They wrote blogs, posted videos and images to YouTube and Instagram channels and otherwise produced content about what most interested them. As they gained followers, they gained influence and companies noticed.

Kylie Jenner, with 164 million Instagram followers, can drive huge sales for her cosmetics line and for other products she promotes. So effective is her influence that companies pay her hundreds of thousands, even up to a million to post about their products.

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