More opportunities than ever before exist for investors. Many fund sponsors are vying for the attention of your investors. If there are issues with your investor relations, administration, accounting or reporting, investors may look for equivalent returns with a better-organized fund sponsor. For investors, stability is crucial. To provide investors with the security they require, fund sponsors must prioritize controls, synergies and cooperation in investor services. Fund management significantly increases its commitment to the stability of the fund by focusing on investor relations and risks a lot by neglecting to prioritize quality in investor-facing activities. Money, reputation and potential future business are all on the line.

At Phoenix American, we encounter many private investment funds frustrated at the performance of outsourced investor relations providers. When the mistakes, delays, miscalculations and miscommunications of an investor relations firm become intolerable and the fund sponsor seeks out a superior provider investor and advisor confidence in the sponsor has already been compromised. At this point, an intricate and time-consuming conversion of investor and asset data to a new provider will come at a cost of time and expense that would have been avoided.

Hands working at a computer station.


Common Investor Relations Failures

Various errors and omissions are unfortunately typical among investor relations processes. These failures can have severe monetary and reputational consequences for a fund. Investor relations failures usually come in one of the following three categories:

  • Systems: Inadequate investor relations systems cannot track, calculate or communicate according to the client fund’s demands.
  • Controls – ineffective internal controls render it impossible to effectively avoid new investment and other input errors.
  • Lack of good communication between teams working on investor relations as they execute different tasks using related data sets

In this post, we will look closely at the role of inadequate systems in dysfunctional investor relations.

Managing and serving the investor database requires the processing and storage of a significant volume of data. Investors and management base their judgments on the reporting and other output of the funds’ investor relations team. All parties must have faith in the accuracy and reliability of the information that investor relations produces and relays to them.

When dealing with thousands of investors and millions of dollars, inexperienced workers in investor relations might make a lot of mistakes. To arrange data and do calculations, an investor relations team may use Excel spreadsheets, various manual processes and other non-specialized technologies. In these cases, errors are nearly certain to occur along with the lateness of deliverables which lowers investor confidence and can be expensive.

A concerned investor looks at a K1 he received in the mail.

Insufficient Systems for Investor Relations

To complete back-office operations, many funds and some investor relations companies employ numerous non-investment fund-specific back-office systems. These technologies are poorly integrated, and Excel spreadsheets and other manual interventions are frequently used in addition to them. This can lead to a variety of investor relations mistakes and missed opportunities. Examples include:

  • Investor statements and portfolio accounting records that do not match the financial accounts.
  • The data in the investor relations system and the accounting data for the portfolio are incompatible.
  • The investor relations system fails to classify entries to the appropriate level, which causes significant NAV adjustments.
  • Systems for accounting, reporting, administration and other functions that perform effectively on their own are not integrated, which leads to erroneous data sets because the information is out of sync.
  • If the fund accounting system and the transfer agent system are not integrated, the trial balances at the class and overall levels might not be the same.
  • Architectural limitations in non-specialized, piecemeal, or ad hoc investor relations systems limit their effectiveness, impede processing or prevent them from managing complicated and constantly changing data.
  • Systems for investor relations that can’t automate tasks rely on human processes and error-prone external systems.
  • Inaccurate data transmitted to printing operations and investor web portals are identified by investors to the embarrassment of fund management.
  • The visibility of the client fund and its capacity to increase sales are constrained by investor database systems that are not integrated with electronic subscription systems, industry sales platforms, data aggregators and other participants.

Systems Specialized for Investor Relations

To reduce external manual activities, a sophisticated investor relations system that is not only tailored for alternative funds but also user-friendly even for the least technologically knowledgeable user is necessary. Controls within an advanced investor relations system will eliminate errors, streamline compliance and provide audit trails that track user activity. Additionally, it needs to have exception-based workflows that do away with manual tasks except in a few limited circumstances that must go through approval processes and proofreading stages.

In addition to assuring the accuracy of the data it contains, an investor relations system must be designed to centralize and streamline all investor relations functions. Scans of all original documents should be stored within investor profiles and easily accessible. Processing of capital calls, proxies, distributions, statements and tax documents should be simple straightforward processes with controls to ensure accuracy.

System integration with the printing facility should streamline production of checks, statements, notifications and other deliverables. Direct connections with wire houses, custodians, financial advisors, data aggregators and other participants throughout the industry should speed data flow and execution of every function involving external parties.

Communication with investors and advisors should be facilitated by an interactive web portal integrated with the investor relations system that provides positions, transactions, statements, tax documents and other information in a user-friendly online environment custom branded for your fund.

The speed, reliability and ease of execution that a purpose-built investor relations system provides saves money on operations, achieves compliance and enhances the reputation of the fund sponsor’s brand among investors and their advisors.

Since the investor relations database houses all the historical sales information of your fund, there should also be reporting functionality that gives you visibility into your sales operations so that you can focus ongoing sales efforts in the most proven productive channels.

An investor relations system built specifically for the needs and goals of your fund not only avoids all manner of investor relations pitfalls, it pays dividends in the form of operational savings, investor retention and fundraising success.