New York City helps new managers source back-office functions

The SEC’s focus on disclosure of fees to LPs, expense allocations and contracts caused many firms to invest millions of dollars to bring legal and compliance capabilities in-house. New GPs often attempt to do the same, but lack the scale to do so successfully, said panelists at The Pension Bridge conference in Chicago on July 20-21.

“The burden of that regulation will certainly affect the smaller managers disproportionately,” Doñé said during the discussion. “That’s something that we are very focused on, that we are helping managers [to show] we are invested in their survival.”

Doñé told Buyouts in a separate interview that he frequently recommends service providers to emerging managers whose firms lack basic back-office capabilities. Back-office issues account for more than half the time he spends conducting due diligence on new managers, Doñé said. When new firms attempt to keep those functions in-house, it raises “red flags,” he added.

To help move past potential red flags, Doñé helps to arrange meetings between new firms and more established managers, he said.

Other LPs at the conference noted that emerging managers face greater challenges in a more regulated environment.

“One thing we would like to do is figure out, how the hell can emerging managers be successful?” said Vaughn Brock of the Teacher Retirement System of Texas, speaking on the panel. “We are trying to draw some other institutions in to collaborate … to get emerging managers what they need.”