Fund Administration As A Profit Center
Innovative approach to fund administration and representing the priorities of fund administration in the major trade associations in the industry.
We have discussed the various ways outsourcing fund administration saves money. However, it gets better than that. There are several ways that a top-tier fund administration company can significantly enhance fund management’s ability to make money.
Your fund administration partner, as an agnostic third-party provider of back-office services, is obviously unable to introduce capital, refer potential investors, or promote your investment product in any manner.
Still, there are several ways your fund administration infrastructure can dramatically improve management’s capacity to generate fresh funds if the fund administration provider is thoroughly experienced, uniquely equipped, and truly aligned with management’s goals.
So, where does fresh capital come from, and how can fund administration enhance fundraising?
Exsisting Investors
Existing investors are the most likely investors in a sponsor’s next fund. Management has already built a rapport with them, familiarized them with its business practices, and provided them with the benefits of management’s abilities in the form of good returns on investment. But fund administration functions are a large part of the investor experience. How has the investor experience been on a day-to-day basis? Have tax documents arrived on time? Is the performance reporting they get clear and understandable? Have their questions been promptly and helpfully answered? Do they have access to their account information through a web portal that matches their needs, offers necessary papers such as statements and tax paperwork, and allows them to communicate easily with management?
A fund administration company that cares about the investors’ perception of management will
- constantly provide clear, accurate, and comprehensive information
- respond quickly to inquiries
- send timely reporting and tax paperwork
Fund administration constancy gives investors a sense of security and contentment with their investment decision, increasing the inclination to invest in future funds with the same sponsor.
Finding new investors for your fund requires knowledge. Actionable data provides insight. Your fund administration partner’s investor record keeping system should provide actionable data. This is, however, a rare occurrence. Few fund administration companies take advantage of tools that can generate detailed sales and marketing reports.
New Investing Prospects
To handle their clients’ investor databases, fund administration firms utilize ‘investor record-keeping’ or ‘transfer agent’ systems. Because the alternative investment world lacks a uniform record-keeping mechanism, fund administration firms have created or adapted numerous systems to manage the back-office activities of fund sponsors. Some fund administration systems are modified versions of systems built for publicly-traded funds, which have quite different back-office requirements. Some are a collection of systems that have been cobbled together to encompass the functionality required for all fund administration functions. Some ‘fund administration’ systems are little more than glorified CRM systems.
Only a few fund administration systems are built from the bottom up as specialized alternative investment fund management systems. Fewer still have a sales reporting capacity that can use investor, advisor, sales, and transaction data to provide relevant insights to the fund sponsor’s sales team in order to generate new sales.
With such a fund administration system at hand, sales teams are able to source new investors by exploring the most fertile terrain revealed by past sales success. Reporting capacity from an advanced fund administration system reveals which financial advisors have the strongest track record, who are the most dependable and long-term investors, what regions are the most fertile, what is the demography of the most best investors. A fund administration system contains crucial sales intelligence that can help management make money. However, only a sophisticated fund administration system with comprehensive reporting capabilities can make that intelligence valuable.
The reputation of a fund administration provider among financial advisors can also help sales. Advisors seek hassle-free interactions with fund administration providers, with minimal errors and delays and the most efficient data flow and communication possible, resulting in faster admit dates. A fund administration system’s connectivity is also a crucial factor. Broker-dealers, RIAs, wire houses, custodians, family offices, the AIP platform, DST FANMail and other industry participants should all have live digital access to fund administration systems to streamline data flow to make the experience of investors and advisors easier.
Broker-Dealers Financial Advisors and Instituional Investors
For financial advisers, data homogeneity and real-time data transmission to and from the fund administration provider makes everything easier and removes stressful delays and ambiguity. If a phone interaction is required, a timely, well-informed fund administration firm that is able to handle concerns quickly gives a good first impression. Advisors enjoy collaborating with that administration provider and, as a result, with its client sponsors. This is bound to have a favorable impact on sales.
As part of their due diligence process for candidate funds, the largest investors, pension funds, endowments, and family offices, value high-quality outsourced fund administration. Many institutions believe that fund sponsors that handle their own fund administration are taking an unacceptable operational risk.
In addition, many institutional investors are members of the Institutional Limited Partners Association (ILPA), an industry trade body. Because institutions want maximum transparency for their stakeholders, ILPA advises its members to demand financial reporting from their portfolio investment funds that follows the ILPA Reporting Template. The comprehensive reporting package, produced by the fund administration partner breaks down the following:
- portfolio performance
- compensation rates
- expenses
- depreciation
- and every other line item and metric of the fund into granular detail
It must also contain full reporting on the fund’s compliance with any and all portfolio investment constraints to which the institution is subject.
Even for fund administration providers who are capable of generating the ILPA template, it is a system-intensive and time-consuming process. For most fund administration firms the ILPA Template is considerably above their capabilities. If a fund wants institutional investors, management will need institutional-class fund administration that knows how to produce the ILPA template and can produce it. A fund administration provider with the reporting capabilities to qualify a fund for institutional money is a huge plus when it comes to fund raising.
A fund’s investors choose the fund based primarily on the return on investment (ROI) management has been able to provide. Fund management has the right to anticipate a return on fund administration (RFA), beyond merely the performance of back-office fundtions, with real positive consequences on the bottom line.
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