Evaluating 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.


Evaluating a Fund Accounting Firm

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

By deciding to engage a fund accounting firm, you’ve taken a big step toward an efficient back office for your fund. Outsourcing fund accounting services, fund administration, investor services, and other back-office functions, so you can focus on sales and assets, is a smart decision, but one that should be made with caution.

It is impossible to stress the significance of choosing the right fund accounting firm. The most important qualities to look for in a fund accounting provider, as well as the questions you should ask about their services, are listed below.

With the right fund accounting and administration in place, fund managers can concentrate their efforts on acquiring assets that will provide the most value to investors.

The Background and Experience of the Fund Accounting Firm

Some fund accounting firms have significantly more relevant experience than others. Firms from various industries may transition into the role of fund accounting. Some businesses offer fund accounting services in addition to their primary services, which may be in other industries. You should look for a fund accounting firm that has a lot of experience with private equity, venture capital, and other alternative investment funds. Fund accounting for alternatives should be their main priority.

A fund accounting firm’s experience with general accounting for large corporations or name brands is not equivalent to fund accounting for alternative investment funds. It’s a mistake to assume that simply because a fund accounting firm’s name is familiar means they’re knowledgeable with private equity and venture fund accounting.

Furthermore, because a fund accounting firm is an intricate team-oriented function, you should look for a fund accounting firm partner who has not been involved in a recent merger or in the acquisition of another firm.

Questions to ask a fund accounting firm about their experience and background:

  • How long have you been working as a fund accounting firm?
  • Did you start out doing fund accounting for private equity and venture capital?
  • Have you worked with a number of asset classes and fund types?
  • Are you primarily involved in general accounting or fund accounting specifically?
  • Have your firm merged or acquired another firm in recent years?
  • Could you provide me some guidance on how to choose the best fund accounting approach for my funds?
  • Is your transfer agent team an SEC-registered transfer agent?

The importance of a fund accounting firm’s background:

  • Alternative investments are a distinct environment in which prior experience is crucial. There isn’t a lot of standardization here. Experience counts a lot in the world of fund accounting firms for alternatives.
  • Fund accounting private equity and venture capital is a unique and difficult role.
  • Fund accounting firms communicate with banks, custodians, broker-dealers, wire houses, clearing firms, data aggregators, and other industry participants. Understanding the players and how they interact takes practice.
  • Based on their experience, your fund accounting partner should be able to advise you on back-office best practices for your specific fund type.
  • Fund accounting firms that have been purchased or have acquired another fund accounting firm can spend years transitioning to new systems, organizational structures, and corporate cultures to the detriment of client service.

Available Services Integrated with Fund Accounting

Is the fund accounting firm capable of offering a full range of back-office services? Even if your current fund accounting and administration needs are small, now is the time to think about how they might change as your finances grow and your strategies change.

Your fund accounting partner will be in charge of all of your most important information. It can be quite helpful to be able to integrate additional back-office services with this single vendor. A fund accounting firm that can manage all fund data and back-office procedures can help with compliance, data security, uniformity, and timeliness of service as well as cost control.

Questions to ask a fund accounting firm about the scope of their services:

  Do you provide transfer agent services, investor services, cash management, tax services, and other back-office services?

  • Do you have a website that investors and financial advisors can access for account information?
  • Can you handle all communication with investors whether by mail, email, telephone or the internet?
  • Are you familiar with the processes of capital calls and proxy voting?
  • Do you print your own statements, checks, investor notices and other deliverables
  • Are you able to refer outside service providers: banking, valuations, audit or other services?

Questions to ask a fund accounting firm about the scope of their services:

The more third-party service providers you have, the more likely you are to have communication issues, misunderstandings, and delays.

  • You can drastically reduce overall expenses by merging services with a single partner.
  • The frequent exchange of sensitive data among various service providers jeopardizes data security.
  • Coordinating the work of numerous suppliers is more difficult than managing a single full-service fund accounting firm relationship for all back-office functions.
  • By employing vendors referred by your fund accounting partner greater efficiency is achieved because the vendors are used to working together.

The Fund Accounting Firm’s Service Flexibility

Your fund accounting firm should be able to set up your fund and provide services according to your demands, your preferred workflow and business strategy. Your fund’s structure, asset class, fundraising strategy and operational procedures make you a unique client. It’s vital to have a fund accounting solution that is tailored to your needs. You shouldn’t have to work around the preferences of the fund accounting firm.

Questions to ask a fund accounting firm about the flexibility of their service:

  • Would you be willing to work with me and/or other parties to solve unique fund accounting problems?
  • Do you have the ability to customize my investor statements?
  • Do you have the ability to custom brand my investor web portal?
  • Is it feasible to customize the reporting output for multiple audiences?
  • Is your fund accounting team up to the task of dealing with a complex waterfall?
  • Do you have the flexibility to adjust your fund accounting solution to changes the strategy, structure, or investor type in future funds?

The importance of the fund accounting firm’s service flexibility:

  • Your fund accounting partner is there to alleviate your back-office stress, not to make you conform to their requirements.
  • Your fund accounting firm’s service and output communicate your brand to investors, advisors, and others in a variety of ways. You should have complete control over how your fund is portrayed.
  • Even if your fund creation document has unusual or complex characteristics, your fund accounting firm’s processes must follow them.
  • You may choose to switch to various investment strategies, asset classes, or investor types as time goes on, which will necessitate new forms of fund accounting support. Will your fund accounting firm be able to service any subsequent fund you decide to launch?

An Important Partnership

If you were building an in-house fund accounting team, you would hire people who possessed all of the traits of a top-tier fund accounting provider. When you consider a fund accounting provider consider whether these are the fund accounting professionals you would hire yourself. The answers to the above questions will assist you in determining whether a provider is qualified, prepared, and eager to be your ideal partner.

There’s more to consider in Part 2 of the buyers’ guide to fund accounting firms. Learn more about contemplating a fund accounting partner to support the needs of your fund.

Learn why industry leaders trust us for their back office

Let’s discuss how Phoenix can elevate your investor experience