How To Choose A Fund Administration Firm
Innovative approach to fund administration and representing the priorities of fund administration in the major trade associations in the industry.
A buyer’s guide to fund administration services for alternative investment funds
Your Fund Administration Partner – What to look for and what questions to ask
If you have decided to partner with a fund administration provider, you’ve taken an important step. Outsourcing fund administration: transfer agent services, fund accounting, investor services and other back-office processes so you can focus on sales and assets is a smart decision but one to be approached seriously.
Choosing the right fund administration provider is key. Here are the most important qualities to consider when evaluating a fund administration firm and the questions you should ask about their offering.
“Having the right fund administration support enables us to keep our primary focus on sourcing assets to acquire with which to provide maximum value to our investors.”
The History and Experience of the Firm
Some administration firms have a lot more of the right kind of experience than others. Firms can drift into fund administration from other roles or from other industries. Some offer fund administration as a side service for clients of other services.
The fund administration provider to look for has many years of specific experience in the alternative investment fund industry. It should be their main business. Fund administration for mutual funds and ETFs is a very different role from fund administration for alternatives. One should not assume that name recognition for fund administration for publicly-traded funds means proficiency with private funds. Also, since fund administration is an intricate team-oriented function, the fund administration partner you want has not recently been involved in an acquisition or merger.
What to ask about the history and experience for a fund administration firm:
- How many years have you been in business?
- Did your company start in fund administration for alternatives?
- Do you have experience with different fund structures and asset classes?
- Are you mainly a fund administration provider for publicly-traded funds?
- Has there been any acquisition activity in recent years?
- Can you advise me on the best back-office processes for my funds?
- Are you an SEC-registered transfer agent?
- Are you SOC audited? (SOC 1, Type II audit for fund administration process controls)
Why Experience Matters:
- Alternatives are a unique landscape. There is little standardization. Experience is everything in fund administration.
- Fund administration for alternatives is complex and is unlike any other role.
- There are many industry participants for fund administration to interact with: broker-dealers, RIAs, wire houses, clearing firms, custodians, data aggregators and more. Knowing the players and how they work together takes experience.
- Your fund administration partner should be able to consult with you on back-office best practices for your specific fund type, giving you the benefit their experience.
Acquired or acquiring fund administration firms can spend years in chaotic transition to new systems, organizations and corporate cultures.
Your fund administration partner will manage all your most essential data. The option of integrating other related services with that single provider may be valuable. A fund administration firm that can manage all fund data and back-office process promotes compliance, data security, consistency and timeliness as well as controlling costs.
Breadth of Service Offerings
Does the fund administration firm offer a full range of back-office services? Even if your current fund administration needs are limited, now is the time to consider how your needs may change and expand as your funds grow and strategies evolve.
What to ask a fund administration firm about the breadth of their service offerings:
- Do you have fund administration, transfer agent, fund accounting and tax services?
- Do you offer an investor/advisor web portal?
- Can you manage all investor communications: mail, email, phone, online?
- Can you manage capital calls and proxy voting?
- Do you have in-house printing for checks, statements, notifications and other materials?
- Do you have referral partners for banking, valuations, audit and other services?
Why a Wide Breadth of Services Matters:
- The more third-party service providers you have the greater the possibility of communication errors, misunderstandings and delays.
- Bundling services with a single provider may mean significant cost savings.
- Frequent transmission of sensitive data among service providers compromises data security.
- A single full-service fund administration relationship for all back-office functions is easier to manage.
Your fund administration provider should be able to set up your fund and provide services according to your requirements, your workflow and the way you do business.
Flexibility of the Service Offering
Your combination of fund structure, asset class, fund raising strategy and business process is unique. A bespoke fund administration solution is important. You should not have to accommodate how the fund administration firm prefers to do things.
What to ask about the flexibility of the service offering of a fund administration firm:
- Can you set up my fund to support all the requirements of my PPM/LPA/LLC document?
- Can you work with me and/or third parties to solve specific fund administration challenges?
- Can you customize my investor statements?
- Can you customize my investor web portal?
- Can you customize reporting output for multiple audiences?
- Can you handle a complex waterfall?
- Can you accommodate changes in strategy, structure or investor type?
Why Flexibility Matters:
- Your fund administration partner is there to take the back-office burden off you not to make you meet their requirements
- Your brand is represented in many ways by the service and output of your fund administration provider
- The commitments in your fund formation document must be met by your fund administration processes even if they are unusual or complex elements included
- Over time, you may wish to offer different investment products requiring significantly different support. Will your fund administration partner be able to support them?
An Important Decision
Your fund administration team should be your operational partner, the people you would hire if you were building an in-house team. The answers to these questions will give you a good idea of whether a provider is qualified, equipped and inclined to be the partner you need.
There is more to consider in evaluating fund administration support for your fund in Part 2 of the buyers’ guide.
Learn why industry leaders trust us for their back office
Let’s discuss how Phoenix can elevate your investor experience