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Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation by Jason A. Scharfman

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CHAPTER 12

Trends and Future Developments

The private equity industry is constantly evolving. Depending on the state of the economy, different types of strategies or funds may be in vogue one year and then shunned the next. Some may feel that from an operational perspective, this change occurs at a slower pace than the supposedly fast-moving investment side of business. Both private equity investing and private equity operations are in flux. Private equity operational risks in particular, because of the evolving nature of the private equity industry as well as an environment of increased regulatory scrutiny, have undergone significant changes in recent years. This chapter provides an introduction of certain trends and anticipated future developments in this space. It is important for investors to understand and anticipate such trends so that their operational due diligence processes do not become stale, but rather adapt to appropriately review the continually changing nature of private equity operational risk.

USE OF THIRD-PARTY ADMINISTRATORS

The issue of fund administrator is one that has evolved in recent years across different parts of the investment industry. These changing attitudes have had a direct impact on the services offered by administrators. A private equity firm, when launching a new fund, has two primary options for fund administration: self-administration or third-party administration.

In self-administration, a private equity management company makes the determination ...

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