How to Evaluate a Fund Accounting Firm

Some of the considerations to think about when evaluating a fund accounting firm along with questions to ask about their capabilities.


How to Evaluate a Fund Accounting Firm

A buyer’s guide to private equity and venture capital fund accounting firms

Since you’ve made the decision to work with a fund accounting firm, you’ve taken a big step toward creating a scalable and efficient investment fund infrastructure. Choosing the correct provider is critical. We considered the fund accounting firm’s experience, depth of service offering, and flexibility of services in Part 1 of the buyer’s guide. Here are some more of the most significant characteristics to look for in a fund accounting provider, as well as the questions you should ask about their capabilities.

The Technical Know-How and System Sophistication of the Fund Accounting Firm

The systems used by your fund accounting partner should increase back-office efficiency and be capable of reporting that makes your life easier. To fulfill your business’s needs, fund accounting and administration systems should be high-quality and adaptable. If your fund requires specific programming, improvements or customized system features, you want your fund accounting partner to be able and willing to deliver them. 

Questions to ask a fund accounting firm about the sophistication of their fund accounting and administration systems

  • Is it possible for you to tailor your fund accounting and administration systems to my asset type and business needs?
  • Is it possible for your systems to accept data from other systems or service providers?
  • Do you have connections to wire houses, broker-dealers, RIAs, the AIP platform, DST FAN Mail, custodians, and family offices through your fund accounting or administration system?
  • What types of sales and transaction reporting can I obtain to assist my sales teams?
  • Is your fund accounting system capable of producing tailored financial reports for GAAP accounting, auditors, deal teams, and fund management?
  • Can you generate the ILPA reporting template for my institutional investors using your fund accounting system?

The importance of a fund accounting firm’s technology

  • Advanced fund accounting and administration systems save on expenses by reducing execution times and eliminating errors.
  • Custom reporting based on your fund accounting data helps you run your fund more effectively.
  • Sales and transaction reporting improves your ability to identify new and repeat investors.
  • Administration system data links to industry entities make transaction execution easier and faster.
  • The efficiency of your fund accounting and administration systems contributes to your brand’s reputation among investors and financial advisors.
  • The controls, proofing stages and audit trails of fund accounting and administration systems increase accuracy and efficiency and make audits easier.

The Customer Service Commitment of the Fund Accounting Firm

It’s important how your fund accounting partner treats you, the client. When you call, you should not have to wait in phone lines, leave voicemails or engage with multiple divisions of a fund accounting firm. Fund accounting’s interactions with your investors is critical to your reputation and further investments. Your administration partner should prioritize serving and representing you.

Questions to ask a fund accounting firm about their customer services:

  • What is the structure of my account team, and when will they be available?
  • With whom will I interact on a daily basis? Is there a back-up for that person in place?
  • Do your fund accounting teams have a lot of experience?
  • What is the rate of turnover among your fund accounting staff?
  • Will the person with whom I speak be familiar with my fund and how we operate?
  • How will my investors and advisors be treated when they contact the investor services team?
  • Is any of your customer service staff outsourced?
  • What criteria do you use to evaluate customer service?

The importance of a fund accounting firm’s customer service:

  • Your fund accounting account team should behave as closely as possible to your own personnel, being responsive, knowledgeable, and familiar with your requirements.
  • The purpose of fund accounting and administration is to save you time and money and eliminate back-office distractions.
  • Your fund accounting partner’s investor and advisor interactions reflect your brand and leave an impression.

The Pricing Model of the Fund Accounting Firm

The cost of fund accounting services should not be the most essential aspect in your decision, but it should be considered. Low prices could indicate that some fund accounting operations are being outsourced, that service levels are poor or that a small, under-equipped fund accounting provider is attempting to gain market share. Very expensive prices may reflect a well-known fund accounting provider’s brand prominence rather than offer real value to you. In fund accounting and administration, value pricing represents a direct link between the charges on your invoice and the actual time and effort required to complete administrative duties.

Questions to ask a fund accounting firm about their pricing:

  • How do you charge for your fund accounting and administration services?
  • Is your pricing based on a proportion of assets under management (AUM) or on time and effort?
  • Is pricing segregated for certain fund accounting and administration services or is everything covered by a flat fee?
  • How does your pricing for fund accounting and administration adjust as my fund expands or as more funds are added?
  • Is your pricing structure clear and simple to comprehend?

The importance of the fund accounting firm’s pricing:

  • You want your fund accounting charges to be money wisely spent on behalf of your investors. Value pricing means that you gain in service quality even as you save in costs.
  • You don’t want to pay for poor service and frequent blunders because you hired a bargain fund accounting firm.
  • Large fund accounting companies may not provide the same level of care to their smaller fund accounting clients as they do to their larger fund accounting clients. What you pay for isn’t necessarily what you get.
  • Your fund accounting partner’s connection with you should be built on more than simply the bill.

An Important Partnership

If you were developing an in-house team, your fund accounting staff should be your operational partner. The above considerations will give you a decent indication of whether a fund accounting service provider is competent, prepared, and willing to be your partner.

Outsourcing fund accounting is a sound business decision, an efficient division of labor, but only if both parties are capable and on the same page. The answers to the questions above should give you a fair idea of whether or not a fund accounting firm would be a good operational partner for you.

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