Who is Anup Kumar, and what does Linedata's services business do?

Evans introduces Kumar as executive vice president and head of global services at Linedata and calls Linedata a long-standing Convergence client. Kumar says Linedata is a mid-market, publicly listed company focused on institutional and alternative asset managers, and that it will complete 25 years the following year. He says its products cover the front-to-back spectrum, including an order management system (OMS), a portfolio management system (PMS), a compliance product, a data-management product, transfer agency, and fund accounting, and that its value proposition is to enable clients to reimagine their operations.

Kumar says the services business has four pillars: investment data management for the front office; the middle office, including reconciliation, corporate actions, collateral management, and reference-data management; infrastructure and cybersecurity; and advisory services, which he describes as consult-to-operate or consult-to-implement. He says Linedata is global, has about 700 clients, works with six of the top ten institutional clients, and has 200 hedge fund clients. On the services side he says the firm is strategy-agnostic, working with private equity, private credit, hedge funds, family offices, and multi-strategy and multi-manager funds.

How did COVID affect outsourcing?

Evans suggests COVID helped Linedata because firms had to reimagine their infrastructure, starting with remote workforces. Kumar says COVID affected both infrastructure and outsourcing, that outsourcing has gone up since COVID, and that the trend continues. He says private credit has exploded, creating a need for specialized resources, and that attracting and retaining specialized talent is a huge issue. He says Linedata is seeing its outsourcing business gain traction after COVID.

What three trends does Kumar see for 2022?

Kumar says three dominant trends are a tailwind for Linedata. The first is growth in private credit, which he describes as a market of about a trillion dollars in assets under management that is expected to reach $1.5 trillion by 2025. He says every deal is customized, which creates significant back-office complexity, is hard to scale, and leaves inefficiency from a technology perspective. He says demand has taken off for valuation processing and loan administration, which require specialized resources and skills.

The second trend is cybersecurity. Kumar says the number of cyberattacks has gone up 700% since the start of COVID and that 80% of them originate at the endpoints. He says financial services, and particularly the buy side, is more susceptible and a soft target for cybercriminals, that he sees interest from the SEC in how asset-management and buy-side firms handle cybersecurity, and that Linedata has launched Linedata Protect, a full-service threat-management solution. He adds that clients are dealing with cyber-insurance firms that are much more demanding about the controls in place before writing a policy.

The third trend is the slow but consistent use of artificial intelligence and machine-learning technologies in back-office and IT operations. Kumar gives the example of a private-credit firm receiving borrower data in different formats, where a credit analyst may spend a lot of time collecting, ingesting, normalizing, and validating it. He says that is a poor use of analyst time and that technologies are being adopted to extract the data cognitively so analysts can focus on investment decisions and monitoring.

What challenges does Kumar see?

Kumar names three challenges: the complexity of the private-credit back office, cybersecurity becoming more important and investment-intensive, and talent acquisition and management. He says the industry is dealing with what it calls a "resignation tsunami," that specialized talent is hard to find and harder to retain, and that firms must navigate hybrid and remote-work policies. He says the industry is responding by being more flexible, but that growth and resignations make talent management challenging.

Kumar links talent to outsourcing: if a private-credit firm loses key resources, it has back-office exposure, including reputational and operational risk, and he says Linedata sees some of that challenge shift to it. Evans says firms in fund administration and audit have had to take it out of fifth gear and put it back into third or fourth until they can manage capacity. Kumar says the issues are capacity, operational infrastructure, and talent, that technologies remain inefficient, that loan administration and loan tracking are still a challenge, and that firms need to think about different operating models while continuing to scale.

How does Kumar describe co-sourcing and captives?

Kumar says competitive intensity is pretty high and describes Linedata as a premier service provider with a high-touch model that deals in complex strategies and complex asset classes. He says Linedata differentiates by servicing complex strategies and by its approach to outsourcing, which it calls co-sourcing. He describes co-sourcing as operating as an extension of the client's operation: mimicking the controls and processes the client has, working inside the client's systems, and augmenting them with transformative technologies. He contrasts it with a standardized factory model.

Evans asks whether the model can involve rebadging or captives. Kumar says it can involve a range of options, that Linedata has supported captive efforts, and that its approach is in some ways a virtual captive, with the client operating as though it has its own team in multiple locations under common operating leadership, processes, and controls. He says Linedata has also looked at captive-monetization opportunities, because captives have become expensive for clients, who may want them managed more efficiently with technology, and that it has done some of that. He says hybrid constructs can meet specific client requirements.

How did the four service-provider markets grow from March 2021 to March 2022?

After the interview, Evans reviews league table growth for administrators, auditors, custodians, and prime brokers. At the start of the episode he says over 600 fund administrators, 500 audit firms, 300 prime brokers, and 1,400 custodians make up the ecosystem servicing the private markets.

The figures below are as Evans states them, rounded or approximate. He measures assets for administrators, auditors, and custodians, and funds for prime brokers.

League table growth by tier, March 2021 to March 2022, as stated by George Evans

Evans says there is a real concentration at the high end among administrators, with growth fairly even between those ranked 6-10 and 11-25 and the top five trailing. On custody he says business continues to spread around the market, both up and down, and he closes by saying competition is fairly fierce, with a lot of jockeying up and down in each of the four segments. These are 2022 figures; Convergence's current league tables are published in its monthly league tables post.

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