Pandemic’s impact on fund administration

  1. Funding challenges
  • Efficient management of funding during uncertainty is a challenge for a fund administrator. A satisfactory funding buffer needs to be managed for meeting capital calls, distribution of payoffs, and redemption and other costs.
  • The pandemic caused difficulty for first-time funds, as few investors looked to sponsor such funds. In a survey by Preqin, 82% of investors surveyed said travel restrictions and social distancing affected their ability to make new investments because they viewed face-to-face meetings as either fairly important or essential to decision-making.
  • Credit products. Due to the increased uncertainty surrounding the pandemic, credit rating agencies (such as S&P Global, Moody’s, Fitch and DBRS) have communicated a number of rating downgrades and credit outlook revisions on corporate and sovereign debt. From a valuation standpoint, it is challenging to assess whether non-payment, deferral or forbearance is a temporary, pandemic-related liquidity event or indicates future default. At the peak of the pandemic, there was increasing incidence of credit risk benchmarks diverging, another challenge for valuations. Instruments are valued assessing quoted bond benchmarks and/or credit default swap (CDS) benchmarks for debt securities; however, CDS and bond spreads for corporates diverge significantly across industries.
  • Lack of recent transaction data to support valuations. The limited availability of recent transaction data makes it harder to infer valuations of portfolio companies. Pre-pandemic transactions may not be useful in the current environment because transaction multiples are typically based on historical financial metrics.

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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