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Why Outsource Now?

Why outsource now?

Increased regulation and market changesare causing private equity rms to evaluate

the cost-benet trade os o outsourcing

versus in-house administration.

Against a backdrop o extensive regulatory

and market change, many private equity

rms are experiencing heightened pressureto deliver greater transparency, better

reporting and tighter accounting controls.

A host o regulation the Dodd-Frank Act,

the Alternative Investment Fund Managers

Directive (AIFMD) and the Foreign AccountTax Compliance Act (FATCA) coupled with

greater demands rom more sophisticated

investors in the post nancial crisis

environment, are ocusing attention on

the transparency, quality and timeliness oinormation provided by und managers.

Furthermore under AIFMD, many private

equity rms in Europe will or the rst

time be required to appoint a depositary.

The depositary may incur onerous legal

and duciary obligations to oversee themanagement and administration o the

und. In order to ull these obligations the

depositary will place signicant inormation

and control requirements on the und.

Given this new environment, many private

equity rms are beginning to evaluatewhether these requirements are best met

by outsourcing und administration to a

specialist provider.

In assessing the viability o their in-house

und administration models versus outsourcedsolutions, CFOs generally consider execution

risk and the control environment. Key

questions and concerns also revolve around

the people, technology and processes

required to set up and maintain the in-house

administration unction.

To establish an in-house administration

unction, private equity rms rst need tohire scarce expertise. Administrators such

as J.P. Morgan are oten well placed to

attract, train and retain high quality peoplebecause they already have a training and

career structure in place to attract and

develop specialists.

At the same time private equity rms must

also establish administrative processes and

invest in the new technological inrastructure

to support them. This diverts attention

and resources rom the main business orunning a private equity und sourcing and

executing great investments.

Maintaining and scaling up in-house

administration is even more challenging,

expensive and time consuming. Privateequity rms are now committed to theuture expenses o keeping the technological

inrastructure up-to-date. This can result in a

step change in xed costs.

As such, in-house administration systems

are not very agile in responding to evolvingregulatory, market and business needs.

However, perhaps the most powerul

argument against in-house administration

is that private equity rms are distracted

rom their raison dtre their value-addedinvestment ocus. While some administrative

related tasks and costs are straightorward

and transparent, such as hiring a recruiter

or providing the necessary technology,

connectivity and/or physical workspace,

others by their very nature, are voraciousconsumers o managerial time.

Outsourcing: The value proposition

Given the challenges and limitations oestablishing, maintaining and adapting their

in-house administration systems, many

leading private equity rms are reachingthe conclusion that now is the right time to

outsource. This represents a paradigm shit

or major unds CFOs who acknowledge thatit takes a signicant leap o aith to partner

with an outside und administrator.

By partnering with an external advisor that

has an established track record, proven

technology and honed processes, privateequity rms can take advantage o more

exible, scalable administration solutions.

The key benets o outsourcing

administration are:

Anincreasedfocusontheircore

capabilities: In a more competitive

market, outsourcing enhances managerial

ocus, allowing C-level executives and

their employees to ocus on what they do

best investing money.

Flexibilityandspeed:Theabilitytoquickly

adjust their investment strategy and add

new private equity unds based on rapidly

changing market conditions.

Enhancedcontrol:Alevelofcontinuity

in operations while mitigating risk in an

ever-changing business environment.

Reducedcosts:Accesstoascalable,

variable cost-based administration

system. This eliminates private equity

rms commitment to the present and

uture costs associated with back ofceadministrative unctions.

ncreased regulation and market changes are causing private equity firms to evaluate the

cost-benefit trade offs of outsourcing versus in-house administration.I

Continued overleaf

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In selecting the right outside und

administrator or their specic needs, private

equity rms should also consider whether

their partner can provide the ollowing range

o tailored services:

Aonestopshopforalltheirbackoce

needs to acilitate expanding business

and strategies.

Theabilitytoservicecomplexfund

structures.

Aggregatedreportingacrossalltheirund products.

Condencethattheiroutsourcedpartner

is constantly looking to the uture,

valuating the best options or sourcing

and implementing new technologies.

Focusoninnovationandadviceon

products that meet private equity unds

growing und portolio, organizational and

market needs.

At J.P. Morgan, we are uniquely positionedto provide innovative, outsourced undadministration and inrastructure solutions

which enable global private equity unds

to improve their control environment and

increase transparency or their investors.

Contact us to learn how we can helpyour private equity rm thrive in todays

challenging markets by delivering the

tailored, scalable solutions you need as your

business grows.

Huw Jones, Executive Director,

Head of Product Strategy and

Management, Private Equity and Real

Estate Services, J.P. Morgan

For additional inormation please contactyour J.P. Morgan representative or visit:

jpmorgan.com/visit/pefs

2013 JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A. All rights reserved. This document contains a summary o the subject matter (and is subject to change without notice) and is provided solely or general

inormation purposes. J.P. Morgan does not make any representation or warranty, whether expressed or implied, in relation to the completeness, accuracy, currency or reliability o the inormation contained in this

brochure nor as to the legal, regulatory, nancial or tax implications o the matters reerred herein. The contents o this document do not constitute any advice. This brochure does not constitute a solicitation in anyjurisdiction in which such a solicitation is unlawul or to any person to whom it is unlawul. Issued and approved or distribution in the United Kingdom and the European Economic Area by J.P. Morgan Europe Limited. In

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