The Fund Administration Partner and the Emerging 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.
An emerging manager is an investment management firm that is raising retail and/or institutional capital for a first, second, or third fund in either the private equity, venture capital, real estate, growth equity, or debt strategies. The term ‘emerging manager’ can also refer to investment groups that have broken off from larger companies, fundless sponsors, and funds with a lower level of assets under management.
Fund administration is not often top of mind for the emerging manager. It is easy to dismiss fund administration as a set of perfunctory back-office tasks without serious implications for a fund. But outsourcing fund administration can benefit new fund managers in reducing costs, satisfying investors and enhancing new investment sales.
The drawbacks of in-house fund administration are reason enough to consider outsourcing. Not only the salaries and expenses of back-office staff, but the expense and complexity of putting in place, maintaining, and troubleshooting the necessary fund administration infrastructure are considerable. The training and oversight needed for a fund administration team to prevent costly errors, comply with regulations and meet the needs of investors, financial advisors and auditors only adds to the expense.
When fund administration is outsourced, technology costs are dispersed, economies of scale act in the manager’s favor and costs are contained by pricing that is pegged to the work that actually needs to be done. There are no issues of overstaffing, understaffing or key man risk with an outsourced fund administration provider.
Third-party fund administration has further benefits in addition to controlling back-office costs
Institutional Expertise and Scalability
An experienced fund administration partner can provide strategic and targeted assistance with vendor recommendations, fundraising guidance, new fund launches and assessments of LPAs and PPMs. While fund formation attorneys may be knowledgeable about the legalities of fund structures and waterfalls, fund administration professionals will be able to advise on whether a structure, though legal, is operationally practical or desirable given the goals of management. A fund administration partner will conduct operational due diligence in, advise on back-office best practices, simplified compliance options and ways to streamline new investment sales.