Fund Administration for the Emerging Fund Manager
Fund Administration now requires multiple competencies and the need to assume a much broader role in supporting multiple functions within risk and portfolio management.
Tomorrow’s high-flying fund managers are the emerging managers of today. To make the journey to successful fund sponsor, a fund administration partner is a valuable ally. The number of emerging managers has steadily increased over the last two decades. The reason is the investment opportunities that abound and the expansion of the availability of more fund types to more investors. Emerging managers take on the challenge of the sales and investment roles but often have little appreciation of the importance of fund administration. Emerging managers are intrepid and have a reputation for producing strong returns through unique opportunities for investors looking to invest in underrepresented and developing talent but unique and novel investment concepts can take on a back-office complexity few anticipate. Experienced outsourced fund administration plays a critical role.
Because emerging managers frequently outperform their peers, more and more investors are specifically looking into investing in new managers. Still, investors insist on transparency, compliance and the kind of customer service that comes from professional fund administration. While most emerging managers are talented at spotting investing opportunities and producing alpha, they are not as strong at keeping track of the back-office details with the diligence of a third-party fund administration partner.
Failures to meet investor service expectations, compliance requirements and audit demands can cost an emerging manager seriously both financially and in terms of reputation. If fund administration is not professionalized, the amount of cash accessible to a less mature fund offering could be severely reduced. Financial advisors particularly are sensitive to fund administration shortcomings amount the products they promote. Emerging managers have the potential to become hot managers tomorrow, but only if they establish not only a solid and appealing investment thesis but also the fund administration capacity to meet the needs of all the participants in the industry.
Emerging managers need not and should not feel the need to employ, train and maintain an in-house fund administration team. Allocating limited resources to construct the kind of fund administration infrastructure that can reassure wary investors is a distraction from the core competencies of a fund manager. Outsourcing fund administration frees the emerging manager to focus on sales and assets while receiving best-in-class fund accounting, investor services, compliance and reporting at substantial savings to maintaining an in-house fund administration team.
Choosing a Fund Administration Partner
Emerging managers rarely have a trusted network of service providers in place because they are setting up fund infrastructure for the first time. An experienced fund administration partner can introduce the emerging manager to auditors, placement agents, valuations firms, compliance firms and tax reporting professionals whose services they can vouch for and with whom they already work. It is important that all the vendors supporting the fund work in concert effectively. The fund administration provider is in the best position to coordinate that ecosystem.
Experience with Emerging Managers and High Touch Client Service
Every manager benefits from a fund administration partner with industry-specific experience and knowledge of best practices. Emerging managers benefit even more from having a highly experienced fund administration partner as their own administration experience may be limited. Having direct access to a fund administration team with vast experience managing private capital fund structures can provide peace of mind in many situations.