In Conversation with Convergence, Episode 42: George Evans, Jessica Mead, and Tom Gandolfo of Alter Domus Discuss Growth and Lift-Outs

Who are Jessica Mead and Tom Gandolfo?

George Evans welcomes listeners to the 42nd episode of In Conversation with Convergence, a monthly podcast featuring clients and special guests. He introduces Jessica Mead, regional executive for North America and a member of the group executive board at Alter Domus, and Tom Gandolfo, Alter Domus's head of sales for North America, whom he has known for an awfully long time. He calls Alter Domus a great company and a great client, and at the end thanks both guests for being a terrific client and for the partnership.

Mead says she started her career after law school in global securitization and trust services at LaSalle Bank, then ABN AMRO, working on CDO, CLO, and CMBS transactions. She says she then left to join Cortland Capital Market Services as one of its founding members, with CEO Doug Hart, opening as Lehman Brothers failed, so the business shifted into fund administration and supporting debt capital markets agency work. She says she ran legal, risk, and compliance there, that Cortland was acquired by Alter Domus about 10 years later, and that she joined the group executive board in a global role and about three years ago became regional executive for North America. Evans says Convergence's relationship goes back to Cortland, before Alter Domus.

Gandolfo says he started at JP Morgan in an analyst program and moved into securitization, mostly asset-backed and mortgage-backed deals, for about six years. He says he then joined Wells Fargo to start up its CLO business and spent about 12 years there, moving into a head of sales role, and joined the newly formed Alter Domus North America team about six years ago, around the Cortland acquisition. He says he works on the relationship management model, sales go-to-market, product offering with marketing, cross-selling with European colleagues, and integrating the commercial teams of acquired businesses into one Alter Domus message.

How does Alter Domus describe itself?

Evans says there are about 640 fund administrators, up from 400 when Convergence started 12 years ago, that it is easy to hang a shingle but the growth is at the top, and that the market often praises how well Alter Domus has integrated its acquisitions. Mead says Alter Domus is relatively new to the US but is a 20-year-old company headquartered in Luxembourg, started as a spin-off of PwC when some partners left to start a corporate services business that grew into fund administration.

Mead says the firm has offices across Europe, Asia-Pacific, and the US, where it began growing about 2017 with a real estate lift-out just before the Cortland acquisition. She says it has over 5,000 employees worldwide, about 1,600 in the US, with a focus on private equity, real estate, and credit and a strong corporate services business. She says it is in 14 regulated jurisdictions plus some smaller unregulated ones, and that US clients interested in Luxembourg or Irish vehicles can be served without outsourcing that work. Gandolfo says Alter Domus is in about 22 or 23 countries. Evans says only a handful of large administrators have that kind of global reach.

How did acquisitions build the US platform?

Gandolfo says the acquisitions were strategic and filled gaps, not simply a way to get bigger. He says Alter Domus has always been an alternatives player in private equity, real estate, and private debt. He says Carta, based in Darien, Connecticut, plugged the private equity hole, and that combining Carta and Cortland with real estate and private debt capabilities created a US platform that mirrored Europe and helped it cross-sell clients across asset classes. He says Alter Domus then picked up IPS, a small administrator, for a Boston private equity presence and Strata Fund Services for a West Coast presence and venture capital focus.

Gandolfo says Alter Domus did not leave the acquired businesses in silos: it integrated management teams and the tech stack, which he says separates it from a few others and is a longer process but a better long-term solution.

What did Gandolfo say about the Cinven investment?

Evans asks about the Cinven transaction. Gandolfo says Alter Domus has had Permira as a shareholder for about six years, with the founders majority-owning the firm and many employees holding equity, and that Permira was toward the end of its life cycle and looking for a good partner to grow with. He says Cinven was chosen as that partner, that the founders and Permira are staying invested as shareholders while taking down their positions by about half, and that Cinven will be the new majority shareholder.

Gandolfo says the transaction had been announced and would probably close in about a month, and that Alter Domus is already integrated with Cinven in terms of operating model. He says Cinven has made introductions to prospects, shared proprietary information that helps in managing the business, and discussed how Alter Domus could support Cinven's own infrastructure. He calls it early days and says he is optimistic about the next stage of growth.

How does the global relationship management model work?

Evans notes the pride Alter Domus takes in its global relationship management model and says private equity firms are investing more heavily in fund administration, citing big transactions at firms such as Gen II. Mead says the model is critical because a US manager with products in Europe wants one person or team to call, who understands the manager from end to end. She says clients often feel they have a different team in Europe or have had seamless-service problems with other administrators, and that a point person who coordinates local experts around the world is the best approach given different jurisdictions' regulatory requirements and timelines.

Gandolfo says internal communication is the most important part of a relationship model, and that the model reflects what clients expect: many new RFPs are global in scope, across products and regions, and many large GPs and asset managers with operations in Asia and Europe want a consolidated approach to servicing their funds. He says the big GPs will only get bigger, and administrators that are not global or lack multi-asset class expertise will be left behind.

What were Alter Domus's technology and data priorities in 2024?

Evans asks what Alter Domus accomplished in 2024. Gandolfo says profitable growth is the focus: Alter Domus does not want to be everything to everyone and wants clients it can scale and grow with as a partner. On technology, he says clients most want access to their data and APIs, so Alter Domus has focused on communication technology, improved portals and dashboards, and workflow technology so clients can see where financial statements stand, replacing email traffic with a more transparent and auditable system, across all its business lines.

Gandolfo says Alter Domus has an investment in a data and analytics business and bought Solvas last year, a software business of a couple hundred employees focused on private debt middle and back office, CLO compliance, and loan administration agency work. He says it is expanding data and analytics products such as financial statement spreading and packaging solutions into what he calls almost a middle office in a box for private debt. He says Alter Domus owns much of its technology, including agency, trade settlement, CLO middle and back office, and its private debt accounting platform, which he says is unusual. Evans says that is a double-edged sword, since it can become a money pit and must scale, but gives flexibility with clients.

How are India, the Philippines, and lift-outs part of the story?

Mead says the Solvas acquisition about a year ago let Alter Domus open offices in India, where Solvas had about 90 employees, and that a group of developers there can help accelerate the technology roadmap. She says Alter Domus also recently opened an office in the Philippines as part of a partnership with a client, Partners Group, and that the talent in these areas supports profitable growth. Evans says Convergence is a believer in the same offshore model, beyond labor and time arbitrage, and has been impressed by the quality from India and the Philippines.

Gandolfo says strategic outsourcing is a huge trend that does not look likely to abate. He says the Partners Group arrangement was a complete lift-out, taking over its middle and back office functions across all geographies and asset classes, which needs global management. He says Alter Domus also completed a real estate lift-out of about 20 people over the last year, opening an office in Seattle, and has done co-sourcing arrangements in which it works on clients' own platforms.

Evans says Convergence did some work with Alter Domus early on identifying lift-out targets. He says he thinks COVID changed lift-outs, because people who built things and were protective of them had to deal with remote workforces and talent acquisition, and that the multiples paid for fund administrators are off the charts, so doing five or ten lift-outs can be much more economical. He says many do not do a big-bang lift-out on day one but want to date before they get married, and that he thinks only about 10 administrators, maybe eight, have a viable lift-out model that can take on many functions and sequence them differently for each client.

What headwinds and tailwinds did they see in 2024?

Evans asks about the biggest headwind and tailwind of 2024. Gandolfo says fundraising has not been as strong as in past years and that many open-ended funds saw redemptions, so clients became more cost-conscious and focused on stabilizing existing funds. He says that slowed the launch of new funds, with slower fundraising creating a domino effect because existing funds did not reach the allocation levels needed to launch the next one. He calls these short-term headwinds, saying surveys and research show alternatives are a growing asset class with double-digit growth in the main sectors Alter Domus serves, private equity and private debt, with LPs increasing allocations and a growing retail market.

Evans says democratization of alternatives is hard to ignore and that it is not hard to imagine people choosing hedge funds and private equity funds in a 401(k) plan. Mead says that as the fourth quarter starts the pressure is beginning to ease, with clients reporting accelerating fundraising and asset sales, and that she expects a pickup into 2025 that has already started.

What are Alter Domus's plans for 2025?

Mead says Alter Domus is looking forward to closing the Cinven investment, probably later in the quarter, that it will keep looking at potential acquisitions over the next 12 to 18 months, and that it will keep investing in technology because clients want more access to their data to push into their downstream systems and LP reporting. She describes the plan as a little more of the same but in a bigger investment way. Gandolfo adds an increased emphasis on brand awareness in the US, because some still see Alter Domus as a European corporate services player, and says getting the word out about the breadth and scale it now has in the US across products will be a major focus.

How does Gandolfo differentiate Alter Domus?

Asked for the elevator pitch, Gandolfo says everyone says it, but the blocking and tackling of having a great team servicing an account cannot be overstated, and that clients say they love working with the team and its product specialists. He says inbound inquiries often come when competitors lose sight of that, with turnover and replacements who do not know the accounts, so clients feel they are training their administrators. He says it comes down to the people.

Gandolfo adds that the platform can serve a vertical chain of structure: corporate services at the top, including board seats and corporate secretarial services, then fund accounting and striking the NAV, and further down the debt capital markets business, which can serve at the asset level with agency services, loan administration, and commercial loan servicing. Evans says Alter Domus has to find a way to make sure the market knows how good it is, and thanks both guests, saying Alter Domus has been a terrific client and that Convergence has had a great partnership helping them pursue the market.

Which figures did the speakers cite?

Figures stated in Episode 42, October 2024

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