As the manager of an alternative fund, if you have done your job well your portfolio of assets is growing, your investor count is growing, your network of advisors and referral partners is growing, the number and variety of your fund offerings is growing and everyone is benefiting from your expertise as an asset manager. With ongoing investment opportunity, the sky is the limit in growing your investors, assets and reputation as a fund manager. But all the back-office fund administration issues that are challenging at the early stages of your fund can become crippling and represent serious risk once you come to be operating at scale.

In-house fund accounting, investor services and fund administration teams or the outsourced services of a multiple vendors geared to the needs of startup funds can break down under the strain of operational volume and the multiple participants that come to be involved as your funds grow. There will come a time when you will have to decide whether to engage a fund administration partner for back-office processes or commit to hiring more and more in-house staff over the long term to handle the ever-expanding operational burden. Scale becomes a factor in fund administration in a number of areas.

Fund Administration and Issues of Scale



As your investor count grows into the hundreds and thousands, the demands of that volume of investors becomes overwhelming. Maintenance of the database becomes a fund administration issue. Investors marry, divorce, move, die, change jobs and email addresses and transfer shares requiring more and more time from fund administration personnel to handle the volume of changes. Investor questions, requests, login issues and tax document inquiries mean an ever-increasing number of phone calls, emails and web portal messages to be processed. Capital calls, proxy voting, notifications and effective communication becomes more complex for fund administration with scale. Investor compliance, AML, KYC, OFAC and investor accreditation, is a growing issue for in-house fund administration as sales volume increases. Without the necessary fund administration structure, the more issues you have with keeping up with investor requirements the more your reputation for professional competence can suffer in the eyes of your essential source of investment capital.

Portfolio Assets

All the same issues exist in terms of fund administration for the assets in your portfolio. As the volume of assets grow, portfolio accounting, accounts payable and receivable, operating income, waterfall calculation, distribution payments, financial reporting and tax document production only grow in complexity for the fund administration team. More and more specialized personnel, able to work in coordination with each other, the investor services team and outside vendors will need to be added to keep up with the needs of the portfolio.

Advisors and Intermediaries

However you raise your investment capital, the number of outside parties requiring reporting and communication will be a growing burden to in-house fund administration. Broker-dealers, registered investment advisors, wire houses, family offices, institutions, clearing firms, custodians and data aggregators – all requiring reporting, data feeds or specialized communication – will be a growing part of the life of your fund and a burden for in-house fund administration. As with investors, your ability to satisfy the needs of all these participants in a timely manner with the particular data in the particular form they require will reflect upon you as a manager and define your reputation in the eyes of these critical entities.


The more parties involved in your fund, requiring sensitive data transmitted back and forth to execute operational functions, the greater the potential for data loss, breach and misdirection. Multiple teams, multiple vendors and an ever-increasing number of intermediaries make fund administration mistakes almost inevitable for in-house teams. Elaborate and expensing systems, integrations, security protocols and operational controls are required. Even so, the larger an in-house fund administration team becomes, the shorter the tenure of new personnel, the greater the potential for errors, omissions and operational risk for your fund. A frequent problem for in-house fund administration is the issue of key-person risk. To prevent the potential for back-office paralysis caused by the departure of a single individual, high-level redundancy is required compounding the payroll expense for fund management.


The more you succeed as a fund manager, the more likely you will see opportunity in different investment strategies, fundraising channels, asset classes and investor types. Adding to the diversity of your mix of fund structures or strategies adds another level of complexity to fund administration in addition to the sheer volume of assets and investors. Multiple share classes, complex waterfalls, side letters, warrants, institutional investors and foreign investors add a whole layer of day-to-day fund administration complexity for your funds.


As your fund grows, new investors are likely to expect a level of operational sophistication that is more and more difficult to achieve with in-house fund administration staff. Retail investors will expect to be able to invest electronically, log into a multi-functional investor web portal, receive customized deliverables like checks, statements and notifications and have transactions and requests processed promptly and efficiently. An in-house fund administration staff, struggling to keep up with the volume of a growing investor roster will find it increasingly difficult to present a modern professional image for the fund. Unimpressive interactions with investors, financial advisors and other participants because of overload for in-house fund administration can hurt the overall reputation of your funds at exactly the time you should be hitting your stride.

The Fund Administration Decision

At some point you will reach a moment of decision – whether to continue with an in-house fund administration team or outsource back-office functions to a fund administration provider. A clear recognition of the fund administration challenges of an alternative fund will force you to make a decision that will be hard to reverse in the future. The superior answer is to invest in an efficient division of labor. A fund administration provider offering any and all services required, with advanced integrated systems and broad experience with alternative funds eliminates risk, saves on management expense and represents a professional fund administration partner able to advise and offer guidance on the operational aspects of whatever strategy, structure or asset class you may want to pursue. Most of all, this fund administration partner sets you up to pursue unlimited scale free of concern for back-office risk. Fund management is best employed in acquiring and managing portfolio assets. Efficient, economical, experienced fund administration should handle the day-to-day operational burden of those assets and the investors who made them possible.