Insights

In an ever-changing financial landscape, the approach to tax compliance is a critical component for businesses. Kevin Zeman of Gen II offers unique insights into this dynamic field. Drawing from his extensive experience, Zeman shares the transformation of Gen II’s tax department, emphasizing a client-centric approach and the importance of adapting to regulatory changes. His perspective reflects the evolving nature of the client–service provider relationship and underscores the significance of innovation and strategic planning in staying ahead of regulatory challenges.

Q: How has Gen II’s approach to tax compliance evolved?

A: At Gen II, we’ve significantly transformed our tax department. This isn’t just a tactical change but a fundamental shift in our philosophy. The result is a client-centered approach, tailoring our services to the individual needs and business models of our clients. This pivot is about deepening our understanding of each client’s unique circumstances and putting less emphasis on the returns and a greater focus on creating and delivering access to the data used to create them.  This shift allows Gen II to create a continued presence throughout the year to assist with strategic tax planning and operational tax management to achieve the desired result.

Q: What is at the core of Gen II’s client engagement strategy?

A: Our core strategy is deeply rooted in personalization. No two clients look the same from a resource or needs standpoint. We focus on understanding the distinct aspects of each client’s business model. This approach goes beyond traditional tax compliance. We commonly find discussions that begin with tax compliance requests and end with bespoke operational solutions designed to address the client’s specific challenges. By staying ahead of changes, we can adapt strategies to provide our clients with the most effective, forward-thinking solutions.

Q: What challenges does Gen II face in the tax industry?

A: The tax industry is constantly changing, especially with the rapid evolution of tax regulations and the increased focus on investor reporting. Our biggest challenge is staying ahead of these changes. This requires a proactive stance, not just vigilance. We’re always forecasting future trends and adapting our strategies accordingly. Our goal is to ensure that our clients not only keep up with these changes but are also positioned to respond quickly to changing circumstances.

Q: What has been key to your success in the tax profession?

A: My success in the tax profession is attributable to a mix of continuous learning, adaptability, and a relentless focus on client needs. This approach has been integral to the philosophy of Gen II. Our mission is to embody these values in everything we do, ensuring that we deliver not just tax services, but excellence and innovation in our solutions. This client-focused strategy is what sets us apart in the industry.

Kevin Zeman’s insights provide a unique viewpoint on the dynamic world of tax compliance. Gen II’s focus on a customized, client-centered approach highlights the necessity of evolving strategies in response to the ever-changing tax landscape. His perspective underscores the importance of innovation and strategic foresight. Tax data management is proving essential for businesses seeking to increase the quality of their LP experience and effectively navigate the complexities of modern tax regulations.

In the ever-evolving landscape of private equity, Gen II underscores the necessity of integrating advanced technology for sustainable growth and improved operational efficiency. Embracing Canoe Intelligence, we are poised to offer significant advantages to private equity fund administrators and their clients, driving an environment of enhanced productivity, accuracy, and strategic expansion.

Emphasizing Automation in Manual Processes: Gen II leverages Canoe to automate time-intensive manual alternative investment processes. This shift allows institutional investors, asset servicers, capital allocators, and wealth managers to refocus on core activities and strategic growth.

Boosting Operational Efficiency & Scale: Canoe empowers Gen II with operational scalability and business optimization. It facilitates efficient scaling of data entry processes, which is vital for detailed portfolio analysis and future growth preparation.

Advancing Data Management Capabilities: With Canoe, Gen II effectively manages large volumes of documents and data. This capability is crucial for timely, accurate, and scalable client reporting, offering efficiencies beyond traditional outsourcing.

Enhancing Data Access & Accuracy: Canoe ensures prompt and precise data access, a critical need for institutional investors and capital allocators dealing with vast alternative investment documents and data.

Optimizing Resource Allocation & Cost Efficiency: Gen II uses Canoe to automate analysis and reporting processes for capital allocators. This leads to better resource allocation and cost efficiency, allowing a refocus on business performance and growth.

Through this integration with Canoe, Gen II advances its commitment to technological innovation, offering a comprehensive solution that enhances data management processes in private equity. This partnership is a strategic move towards increased operational efficiency and data accuracy, essential in today’s competitive market.

Sensr® is a cutting-edge, fully managed platform designed specifically for private equity sponsors. This dynamic fund performance and attribution analysis tool represents a significant leap in fund administration technology, streamlining and enhancing the way funds are managed and reported.

Sensr® provides comprehensive and detailed fund data analysis. It integrates seamlessly with Gen II’s technology platform, ensuring consistent fund performance data. Its user-friendly and intuitive interface allows for efficient aggregation, reporting, and analysis of performance data across various fund families, investment vehicles, and investors.

Sensr® Excel
The Sensr® Excel plug-in revolutionizes how fund data is integrated into spreadsheets. It allows for direct access to Sensr® fund analytics and data from within Excel, enabling users to employ their custom workbooks while benefiting from Sensr®’s comprehensive data analysis capabilities. This integration means that complex and dynamic fund performance data is readily available in a familiar spreadsheet environment, streamlining the process of creating detailed and customized financial reports.

Moreover, the plug-in offers automated data retrieval, a crucial feature for maintaining up-to-date fund information. With this, Excel spreadsheets can dynamically update with the latest data from Sensr®, ensuring that reports and analyses always reflect the most current information. This automation not only saves time but also significantly reduces the risk of errors associated with manual data entry.

Sensr® PPT
Similarly, the PowerPoint plug-in extends Sensr®’s capabilities to the realm of presentations. This integration allows users to access fund data directly within their PowerPoint templates, helping to create compelling and informative pitch decks and reports. The ability to embed Sensr® charts and graphs into slides ensures that presentations include clear, consistent, and visually appealing representations of fund performance data.

An essential feature of the PowerPoint plug-in is its automated synchronization capability. This ensures that all the values, charts, and graphs within the presentations are consistently updated with the latest data from Sensr®. This feature is particularly valuable for maintaining the accuracy and relevance of presentations that are used repeatedly over time.

The Sensr® Excel and PowerPoint plug-ins embody a significant advancement in the integration of fund performance data with key office applications. These tools not only facilitate a more efficient and accurate representation of complex financial data but also streamline the processes of analysis and reporting in private equity fund management.

As the fundraising environment tightens, top-tier GPs are evaluating how their internal value proposition differentiates themselves to investors

This latest period of global financial instability has forced many GPs to reevaluate their playbooks with investors.

Inflation has taken its toll on a record level of dry powder stockpiled by fund managers. Even the top players are looking inward to evaluate how their digital maturity may impact their next fundraise and help them emerge stronger from the downturn.

Those who are successful cement their place among the next era of private equity powerhouses.

With a volatile market, however, comes new product innovation and additional pressure on GPs for operational excellence. Elite GPs, those who operate at a higher level already, are focusing on enhancing their key LP relationships ahead of the next fundraise.

As the business of private equity itself has matured, managers who previously championed their investor relations efforts early on came out on top of the fundraising race. Today, that’s not enough. Those that similarly prioritize and advance their data systems and technologies will be most successful.

The best-in-class have used this time wisely

In these times, investors have begun to make assumptions that some managers are sitting on their hands waiting for interest rates to improve as a means to artificially bolster their fund marks. They’re also savvy enough to see that the best-in-class GPs are getting more creative.

As a result, LPs will be attracted more to managers who use this uncertain time wisely. A recent report, “Fund Administration Technology, Private Equity’s New Differentiator,” found that 48% of institutional LPs are a lot more likely to invest when fund administration includes automation.

Key players understand this value proposition and are implementing adaptable technologies, according to, “Private Equity Outlook in 2023: Anatomy of a Slowdown”,.

Complacency could mean trouble

Fund managers who strategically leverage their time to focus on technology that allows them to implement, support, and adapt to creative deal structures will emerge on top. The elite performers who are committed to advancing their technology will be better suited to remain competitive and differentiate themselves in a saturated market of GPs and win.

On the other hand, PE fund managers not willing to catch up with digital transformation may soon be in trouble. In a down cycle, exemplified by recent Q2 PE fundraising numbers, evolution over complacency will be the difference between an LP re-upping or allocating elsewhere.

Complex products require a different approach

Products available to underlying investors have dramatically increased in complexity in recent years, and the resources necessary to manage that related data have also skyrocketed.

Top-tier GPs at the helm of this extraordinary product development are hunkering down and improving their tech stack.

As LP appetite for sophistication in both products and fund structures rises, private equity fund managers that can meet demands for complex offerings will likely rise to the top of investor lists during their next fundraise.

Partnering with third-party technology providers has allowed elite GPs to gain further market advantage against their middle-of-the-pack peers.

Without explicit investment in advanced technology, LPs will begin to question managers’ ability to navigate and report on increasingly complex funds. A lack of internal infrastructure built to increase transparency in investor communications will disallow innovation.

This is especially timely as regulators have made it clear that reporting requirements for private funds continue to be a top priority.

Rising to meet higher LP expectations

LPs want GPs to focus on what they know best, dedicating their attention to their portfolio and sourcing downturn-proof deals. Managers that are too focused on manual and legacy processes will be unable to keep up with the elite firms leveraging technology to alleviate burdens.

Technology can offer GPs a chance to rise to their LPs’ high expectations on trust, transparency and reporting out the additional data that comes with fund product innovation.

Those who use this recessionary time to make technology adjustments will set themselves up for growth once the market recalibrates and will be the most attractive to LPs. Those who remain stuck in their ways, unable to adapt to an evolving landscape will be left behind.

Two years ago at this time, emerging managers seemed to have survived the challenges brought on by the pandemic and were finally poised to pick up where they had left off prior to the global shutdown. LPs were eager to make commitments to new managers, new entrants were coming into PE every day, and the fundraising market was robust. It has been a very different story, however, in the time since. Significant and seemingly constant winds of change, led by the SEC’s new rules for private funds approved in August 2023, have made an already difficult fundraising terrain that much more challenging for smaller and emerging managers. Investors tend to be less willing to allocate to newer managers in uncertain times, and the pressures emerging managers are facing is reflected in this year’s survey results from both LPs and GPs, who clearly see the universe of private capital fundraising transforming right before their very eyes.

Views on allocations and fundraising

Investors continue to make adjustments to their private market portfolios, with many still taking a more conservative approach to capital allocations and not establishing new relationships. This is being driven in part by both a slowdown in the velocity of capital flow and the ongoing trend of larger firms raising more and more of that available capital. With established firms coming back to market sooner and raising increasingly larger funds, re-ups are absorbing much of the bandwidth of investors. This is making it difficult for emerging managers not only to get their fair portion of the annual capital allocation pie but to even get in front of investors. Investor allocations a year ago were stretched thin, but more than three-quarters of respondents (76%) continue to report that they have formal PE allocation programs. Investors have capitalized so far in 2023 on favorable buying conditions, enough so that the survey revealed an uptick in LPs’ average annual PE/VC target allocations from 47% of their portfolios in 2022 to 50% in 2023.

Fundraising across the board is becoming more challenging, again compounded by the ramifications of the new SEC rules, and this is especially true for emerging managers. However, LPs are still deploying capital and in 2023, progress was made in terms of the length of time it takes to close on a commitment from start to finish. In 2022, 65% of LPs reported that it took anywhere from one to four months from the date of first introduction to signed commitment; this grew significantly to 79% in the 2023 results. At the same time, the expectation of longer closing times fell as only 3% of LPs reported closing periods of 12 months or more, compared to 21% in the prior survey. The most common period, by far, continued to be five to nine months (57%).

The good news is that many investors are confident their allocations for new commitments to emerging managers will remain steady, but with a decline from 66% to 58% of respondents. The data also clearly shows that LPs are seeking to expand their emerging manager positions to drive more diversity through this segment of their portfolios. Those LPs reporting that they hold 0-5 emerging managers fell from 61% in 2023 to 39%, while those with 16 or greater more than doubled year over year.

The bar, as always, is set high

LPs are continuously looking to add new managers and want to invest with newly formed firms with genuine differentiation. Anecdotally, many believe GPs are “hungriest” to perform for funds with Roman Numerals one through three. At the same time, they recognize the challenges emerging managers face, particularly, to not only source investments and create value but to stand up a back and middle office to meet their LPs’ rigorous reporting and compliance demands. So, while there is still space for new players seeking capital, the bar is always set high.

A large majority of investors – 80% compared to just over two-thirds in 2022 cited superior returns and portfolio diversification as the primary reasons for their emerging manager programs, and 92% — up from 79% in 2022 – said they are still most likely to invest in an emerging manager formed by a team spun out from a larger firm. At the same time, LPs continue to put increased pressure on emerging managers when negotiating terms. In particular, the number of LPs requesting access to co-investment opportunities grew from 45% to 60%, while LPAC participation was another common request, jumping from 63% to 72%.

Whether this is the right approach to position fledgling fund managers to thrive – because they’re certainly not reducing their reporting demands – it underscores the pressures facing new managers. In this more risk-averse environment, which seems as if it’s here to stay, it is even more important that emerging managers partner with the right service providers so they can focus on the mission-critical tasks of raising, investing, and growing capital without taking on the back- and middle-office responsibilities that might otherwise create a distraction.

Increased demand for real-time access to accurate, timely information

Given the significant levels of capital invested in the alternative investment space and a larger addressable market of investors, automation, accuracy, and transparency have never been more critical. In fact, the newly approved SEC rules for private funds – the most significant industry reforms in nearly 15 years – are aimed directly at increasing transparency for all investors.

In the private markets, implementing technology is a requirement to handle not only the increasing volume of investors but the growing complexity of the fund structures. Increased competition for emerging managers is driving next-generation technology to fill a critical role in the fund administration process for emerging managers.

Not only are LPs in the driver’s seat when it comes to capital raising and negotiating terms, but they are also driving trends in fund operations. This is especially true around new technology, which is fast becoming table stakes to facilitate improved onboarding through electronic subscription documents, bespoke and more frequent reporting, and more depth and transparency around performance and attribution reporting as well as portfolio monitoring.

Technology is changing how GPs onboard investors by digitizing the fund subscription process from a labor-intensive, error-prone paper process to an automated, digitized subscription process that is more accurate, reliable and customizable. Utilizing electronic subscription documents not only improves the LP experience, but it also gives fund managers immediate visibility into investor activity and fundraising analytics. This visibility is critical in an environment where the competition for capital is heightened.

As the asset class matures, there will be a sea change in reporting frequency, particularly to the extent managers welcome HNW and accredited retail investors. Historically, reporting is done on a quarterly basis. However, some LPs are starting to ask for more frequent reporting, seeking the same access to information that they have for their public market investments. The adoption of technology will likely be required to accommodate the acceleration in the timeliness and accuracy of information LPs are requesting.

Private equity sponsors are also embracing technology around portfolio monitoring. They’re leveraging data and analytics for real-time insight into how they’re generating returns and using these capabilities to optimize decision making. With the growth in private equity as an asset class, we are seeing much more demand for data and precision in analytics as sponsors realize that their data is a potential source of differentiation.

In today’s investing climate especially, LPs want to know that the GP they’re investing in works with a reliable operations partner. Specialist fund administrators like Gen II play a key role in helping emerging managers become stronger operationally, which in turn makes them more institutionally investable.

In terms of data capabilities, Gen II’s tools give sponsors “corner office” analytics and insights into their portfolios and a performance analytics platform that offers both a 30,000-foot view of their enterprise or fund as well as granular details at the investment level. These capabilities through Gen II allow emerging managers to offer best-in-class bespoke reporting for LPs that are increasingly demanding transparency, custom reporting requirements, and real-time access to details of their investments, performance attribution, management/performance fees paid, etc.
At Gen II, we believe that investing in technology and investing in people go hand in hand. We look for a balance and try to invest in technology in areas where we can scale, reduce cycle times and improve quality, but also maintain capabilities to ensure that we can administer and manage these complex structures or even enhance the “operational” alpha embedded within them.

Working with the right partner is key

Scalability, performance, and experience truly matter, and the majority of emerging managers start their life with an administrator relationship. Given the increased complexity of fund structures, escalating stakeholder expectations, and complex regulatory requirements, it is vital that emerging managers team up with a provider that can demonstrate relevant and specialized experience. Equally important considering the long-term nature of these relationships, is a commitment to technology investment, team continuity, and the ability to scale with clients.

Gen II has helped launch more emerging managers than anyone else in our industry. In the process, we have partnered with each of them to build strong foundations for success, and helped them scale as they added new funds, LP types, geographies, and even alternative strategies – from every flavor of PE to private debt and real assets. The private equity entrepreneurs we work with value the confidence our experience imparts, and they can trust their funds will be well-run.

For the remainder of 2023 and beyond, the survey reflects that while capital raising for emerging managers will continue to be challenging there will be opportunities for continued growth over the long term. However, lower capital allocations, economic uncertainty and hesitation to take on greater risk, are causing LPs to diversify their existing emerging manager positions and be more selective in the overall manager evaluation process. A highly qualified set of professional service firms – fund administrators, auditors, placement agents, compliance consultants and attorneys – with deep experience supporting first-time funds will continue to be vital to the emerging manager’s success.

The Common Reporting Standard (CRS) (December 18, 2015), which governs the automatic sharing of financial account information for taxation purposes, has been amended. The Amended CRS Law (May 16, 2023) introduces a new requirement for reporting financial institutions related to data protection.

Under the Amended CRS Law, reporting financial institutions must formally inform individuals about the specific information they plan to share with the Administration des Contributions Directes (ACD). This notification must occur before sharing the data with the ACD, and clients must be given the opportunity to correct any inaccuracies in their personal data as per the General Data Protection Regulation (GDPR). The Amended CRS Law does not prescribe the method of communication for this personal data.

The Luxembourg data protection authority Commission Nationale pour la Protection des Données (CNPD) welcomed this amendment in a bill (December 2, 2022) focused on enhancing data sharing transparency. The CNPD believes that this increased transparency empowers individuals to exercise their right to correct data under GDPR, ensuring that accurate and current information is shared with the ACD in line with GDPR principles.

Individuals are advised to review the information they receive and promptly inform reporting financial institutions of any errors or changes. It’s important to note that this new obligation is not a means for individuals to oppose data processing, as it is a legal requirement for reporting financial institutions.

Compliance with CRS reporting is crucial for investors as it promotes transparency and facilitates the exchange of financial information between countries. For private equity firms, adherence to these regulations is essential to manage risks, maintain a positive reputation, access global markets, and demonstrate their commitment to international tax transparency standards. Our Tax team is well-equipped to ensure accurate and timely completion of your FACTA & CRS reporting, giving you peace of mind.

If you have questions, contact us.