The Changing Landscape of Banking Relationships in Private Funds

Comfort is exactly what clients want.

This is especially true for first-time fund managers who are navigating challenges such as setting-up and maintaining their bank accounts. It can take up to six months to set up a bank account – which is a long time to wait. To add to the frustration, some big banks are closing bank accounts for funds that are still active and in need of banking services.

Read on for how ZEDRA helps set their fund clients up for success.

We’re in an environment of high interest rates, inflation, and geopolitical upheaval. Against this backdrop, how is the landscape of banking relationships changing in private funds?

The primary challenge for smaller private funds, and even some larger funds, is the diminishing risk appetite of the traditional big banks. They’re being very careful about where they’re investing their time and resources; decision making and onboarding times have increased significantly.

It’s a difficult fundraising environment at the moment. So, if a fund manager has investors lined up, they’ll want them in quickly, which means having a bank account to receive monies. But that’s taking a lot of time from a fund manager’s perspective – some banks are taking anywhere from three to six months to open an account.

The other challenge we’re seeing is traditional banks deciding to close the accounts of funds towards the end of their lifecycle. In wind-down, which may take months to realise illiquid assets, the fund still needs to run its operations. It still has its investors, it still needs servicing, it still needs a bank or a payment account. So, what does the fund do when their banking provider serves notice, where do they go?

What type of clients do we work with? Are there any common denominators?

We have a diverse range of clients and industries – but one thing they all have in common is that they have almost all tried a traditional bank in one way or another, before coming to us to help them find a solution. We’re also seeing more and more enquiries from private funds – it’s increasingly common for owners of start-up businesses to look to family and friends for support when they make their first Fund foray and need additional funding.

It’s also interesting seeing the ways in which demographics play a part. Broadly speaking younger generations tend to want to move faster. That’s their normal. They don’t like red tape or waiting a long time for the service they need. They’re used to things happening at the press of a button. They’re open to innovative ways of doing things and have that mindset of smoother, faster, seamless. Often, they’re looking for an alternative to the traditional big banks.

Potential clients will ask us who we liaise with and who should be in our rotation of trusted advisors that we might suggest. That will depend on the individual client, and what their proposal is and what they’re working on. We tend to start broad, and then narrow in as to who would be an aligned relationship for those parties. We’ll consider what the client is looking for from a service point of view. That’s really what drives our decision making and who we put forward.

Once we’ve helped a client narrow in on what asset class they’re offering, what the size of the fund is, what jurisdiction they’re looking at for their investors, the next big question is how can this work operationally?

What does ‘good service’ look like?

It’s about making it frictionless, seamless, making the client feel comfortable that we’ve got this, we’re moving fast but we’re looking after you as well. Fund managers want to spend most of their time looking after their investments. They don’t want to hear about problems or experience delays. They want business as usual and that’s what we are here to provide.

Clients don’t want to have any surprises in their relationships with their service providers, that’s why we work very closely with them – not just at the start of the fund, or the mid-life of the fund, but throughout the whole life of the fund.

It comes down to relationships. Clients appreciate our simple, intuitive and bespoke platform supported by Tier 1 Guernsey banks, gives confidence, scalability, and support for external connectivity. However, the personal touch is being on hand to discuss FX and manage operational needs.

Providing user-friendly and easy access for clients to their accounts is also important.

If we could make one aspect of the industry easier for our clients, what would it be?

It would be around increased compliance and regulation. Of course, it’s important – but there’s a fine line between the comfort you gain and the additional hoops that you may have to jump through to get business done.

All the more reason why getting close to your clients is always going to be a winner, versus being faceless.

Clarity, comfort, and control are the three things clients want.

How ZEDRA can help

As the industry gets ever-more complex, third-party fund administrators like ZEDRA can help guide clients through the entire lifecycle of a fund, from the initial concept stage, through the execution of fund formation, to ongoing operational delivery and then supporting with end-of-life close-down.

Bringing a wealth of experience across jurisdictions, fund structures and asset classes, and with familiarity of dealing with a broad client base, we can help funds respond decisively to escalating regulatory scrutiny and intensifying reporting requirements.

In a fast-moving market, there are few issues we have not navigated before and plenty that we can anticipate before they cause problems. As private capital continues to power forward, we look forward to remaining at the vanguard as managers position to thrive.

For more information pleas, get in touch.