T he benefits to investment funds of outsourced fund administration are many and varied. Fund management, skilled in sourcing capital and identifying investment opportunity, are not adept at fund administration tasks: fund accounting, transfer agent services, tax services, sales reporting, investor phone support, web portal, printing, fulfillment and compliance support.
As a general proposition, fund administration is best outsourced as a way of removing the distraction and frustration of back-office functions from the core missions of fund raising and asset management. It is easy to dismiss the outsourcing of fund administration as just another vendor relationship. But there are 10 ways that third-party fund administration outsourcing actually benefits the bottom line:
- Payroll savings
The costs and complications of maintaining an in-house staff for fund administration only magnifies as your fund succeeds and grows. Sick time, vacations, employee benefits, training, etc. are a considerable expense and an unnecessary headache for a successful and expanding office. Hiring and firing, overstaffing and understaffing, training and retraining are ongoing challenges. Quality third-party fund administration gets all the back-office tasks done with no staffing or human resources issues.
Specialized systems in the hands of trained and experienced operators accelerate and streamline every back-office function. Hours spent on new investment entry, resolution of errors, reporting, maintenance, transfers, distributions and commission calculations are minimized. Controls built into fund administration systems that apply data uniformity, minimize errors, track activity and provide audit trails also enhance efficiency.
- Integration of services
Data processed by advanced fund administration and accounting systems are available in real time for capital calls, distributions, tax form production, compliance reporting and investor transparency via mail, email or web portal delivery. This optimizes data flow, maximizes data security and reduces the cost of every function.
Auditors price their services based on each client’s history of organization and timely preparedness for their audit. A fund administration firm that provides prompt scheduled delivery of accurate and flexibly available data makes the audit process more efficient, less disruptive and less expensive for fund management.
An efficient division of labor means all parties focus on their core competencies. A fund administration provider focuses on performing administrative functions and keeping up with industry regulations, trends, requirements and best practices on the operations side so fund management can focus intensely on sales and investments. This division of labor minimizes operational risk and the costs associated with responding to unforeseen issues.
Professional third-party fund administration makes an impression. Investors, financial advisors, auditors, institutions and regulators notice when a) everyday activity is prompt and accurate, b) questions, requests and requirements are addressed swiftly and knowledgeably and c) deliverables are of high quality and professional appearance. Fund management acquires a reputation for stability and excellence when both investment return and operational responsiveness excel. Such a reputation encourages reinvestments and enhances sales of new investments.
By migrating fund operations to a third-party fund administration provider, in-house staff can be re-deployed to activities that contribute to enhanced returns. Additionally, advanced fund administration firms are able to provide sales reporting, financial reporting, web portal solutions, fulfillment services and investor/advisor phone teams to support and empower these activities – magnifying the benefit of reassigning the in-house staff.
Smooth effective fund operations avoid regulatory fines. An experienced fund administration firm can call fund management’s attention to potential red flags, avoiding costly mistakes and violations. Advanced fund administration establishes policies and procedures that keep funds from avoidable mistakes, saving the time, cost and disruption of regulatory inquiries.
- Gained industry knowledge
The experience of a fund administration team allows client funds to skip steps and streamline functions. Since a seasoned fund administration provider has learned from the experience of many clients, funds can benefit from the experience of others rather than make avoidable mistakes themselves.
- Economies of scale
Fund administration allows client funds to benefit from the centralized processing of one provider for many clients. The economy of scale not only concentrates experience and knowledge where it does the most good but reduces the hourly cost of back-office tasks and eliminates the waste of salaried in-house operations employees with more paid time than tasks to perform.
From the inception of a fund or at any time thereafter, the decision to partner with an experienced reliable fund administration firm is a smart investment. It’s an investment in efficiency, management focus and smoother relationships with all parties, with a real benefit to the bottom line.
Phoenix American provides full-service fund administration, fund accounting, transfer agent and investor services as well as sales and marketing reporting to fund companies in the alternative investment industry. The PAFS Aviation ABS group provides managing agent and fund accounting services for securitizations specializing in the commercial aviation leasing industry. Phoenix American was founded in 1972, has six locations worldwide and is headquartered in San Rafael, CA.