Across all fund strategies, the trend toward third-party fund administration is growing, spurred in part by rising investor expectations and fund administration requirements. The benefits of outsourcing fund administration are even more dramatic for debt funds. According to new research, outsourcing the management of the complex fund administration role helps fund management scale quickly, capitalize on opportunities, gain access to senior-level operational expertise and maintain a competitive advantage in an asset class that is more crowded than ever with investment sponsors pursuing a myriad of strategies.
There are many opportunities in debt funds, but managers must be able to keep up with demands on the fund administration side in order to take advantage of them. Fund managers may have the expertise to originate and distribute deals, but they may struggle to service a labor-intensive debt fund if they lack the essential fund administration capacity.
Outsourced fund administration relieves managers of the pressures of the back office, allowing them to source more investors and manage more loans without increasing expenses or endangering investor faith or lending agreements with inadequate fund administration processes. The ability of outsourced fund administration to process new investments and manage the investor database alone is reason enough to outsource fund administration. The ability to manage asset complexity is another. Fund managers can leverage the capacity of outsourced fund administration to grow out into atypical loan types such as syndicated loans, convertible loans, revolvers/delayed draw instruments, and other sophisticated debt structures without concerns for how they will administer the portfolio. The capacity to administer these types of loans is a valuable benefit of outsourcing fund administration services.
Partnering with a fund administration provider greatly improves reporting and reassures investors by putting fund administrative processes in the hands of a neutral, professional third party with specific skills and technology fitted to the task. Improved investor reporting is one of the principal changes that helps private equity firms gain a competitive advantage in the market.
Specialized Fund Administration Technology
The alternative investment industry as a whole has begun to place a greater emphasis on technology in order to eliminate paper-based processes, automate transactional tasks, better utilize data, improve compliance and provide more extensive, tailored reporting. Because of their dynamic structure and added complexity, debt funds have an even greater requirement for investment in fund administration technology than funds of other asset classes.