LPs More Likely to Invest in GPs That Outsource Waterfall Calculations

Global study by CSC reveals rising demand for third-party outsourcing of waterfall calculations

WILMINGTON, Del.--(BUSINESS WIRE)--The private markets industry is seeing a notable shift towards outsourcing services for distribution waterfall modeling and calculations, according to recent research by CSC among senior executives in the private capital industry and institutional investors.

The Distribution Waterfalls 2024: Transparency, Technology, Trust report by CSC¹, a leading provider of tailored administration and strategic outsourcing solutions to alternative asset managers, surveyed 200 GPs and 200 LPs across North America, Europe, and Asia Pacific to understand their views on transparency and customization in waterfall calculations.

The findings reveal that nearly all LPs (92%) expect to see more GPs outsourcing waterfall modeling and calculations to specialist third parties over the next 24 months, with the vast majority of LPs (87%) far more inclined to invest with GPs that already do so.

“LPs want input from independent third parties who have the expertise needed to reduce the risk of an error and ensure accurate waterfalls calculations,” says Silvia Tong, director of Fund Services, North Asia, at CSC. “Utilizing third-party providers can also reduce potential conflicts of interest, further increasing their appeal.”

For GPs looking to maximize their competitive advantage, outsourcing appears to be a popular course of action. Three-quarters (75%) of GPs surveyed say they plan to outsource more waterfall calculation services in the next two years, while only 17% plan to keep these processes in-house.

As GPs face increasing customization demands, outsourcing is expected to play a larger role in managing the growing complexities of waterfall arrangements.

“Waterfall provisions involve complicated calculations and legal matters, with each LP having unique terms based on the investment strategy and investor preferences,” notes Alejandro Jr. Tan, senior manager of Fund Services, Jersey, at CSC.

“Outsourcing can play an important role in providing LPs with accurate, transparent, and objective information―enhancing performance, answering the growing pressure for firmer standards, and ultimately building stronger relationships and boosting investor confidence.”

To receive a copy of CSC’s Distribution Waterfalls 2024: Transparency, Technology, Trust report, contact Thomas Dalton at [e-mail].

¹CSC, in partnership with Pure Profile, surveyed 200 GPs and 200 LPs equally distributed between North America, Europe, and Asia Pacific in July 2024, to understand their views on transparency and customization in waterfall calculations.

About CSC

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