If you’re a private equity or venture capital fund manager, few decisions are as critical as how you manage your back office. Between potential liability, overhead and impact on your time, these operations inevitably influence your bottom line. That’s why fund managers are increasingly choosing to outsource these functions. But fund administrators vary in their capabilities and the type of clients they serve. Here are five critical questions to ask to find the best fund administrator for your alternative assets business.
Five key questions when selecting a fund administrator
1. What are the fund administrator’s automation capabilities?
One key benefit of outsourcing is getting access to advanced technology platforms without the cost and headache of implementation. And with significant advances in wealth tech, the right fund administrator can give you a considerable competitive edge. So the capabilities your fund administrator brings can literally make—or break—your results.
Look for a fund administrator with robust in-house technology, data management and technical partnerships. That way, you can get real-time data in a user-friendly format to help improve your decision-making and efficiency. In addition, your investors want effective reporting and tools so they can best stay apprised of their investment with you. The right technology can make many aspects of your business easier, from capital calls and waterfall calculations to tax preparation.
Additionally, how well does the fund administrator handle alternative assets? Not all firms are setup to handle the complexity of these investments efficiently. Then, also ask how the technology connects and supports General Partners, Limited Partners and other stakeholders. And, what security is employed to keep your data safe?
If you’re primarily in the alternative assets space, you likely will do best with an end-to-end solution specifically designed for the alternative assets industry.
Bottom line, technology can impact your profit margin and competitiveness, so take the time to explore your options. Find a firm that brings the right wealth tech so you can enjoy efficiencies, save money and have faster access to information.
2. Does this fund administrator have experience successfully helping similar firms?
You can have a capable fund administration firm, but if they don’t help firms with similar needs, you may not have the smooth experience you expect. If you’re an alternative assets manager, you will likely want to find a fund administrator specializing in that space. If not, you may find their solution isn’t as efficient for your firm as you hoped. So be sure to find out what core clientele the firm serves to ensure their team has the technology and experience you need.
3. Does the firm offer a full-service approach?
The best fund administrators offer services designed with one goal in mind: to free you to focus on your core business. So for venture capital and private equity, that usually includes all fund accounting, compliance, investor relations and everything your middle and back office team would provide.
So, the fund administrator you select should have systems in place for all of these functions. If you work in multiple jurisdictions or with unusual entity structures, ask how those will be handled. You want to ensure all these functions are automated and centralized so they share the same data source.
Also, look beyond the standard scope of services. The best fund administrators act more like an extension of your team. That means help with one-off needs and special requests. This can help your staff stay on track. But not all fund administrators offer this type of extended service, so be sure to ask.
4. How does the fund administration firm ensure quality control?
One of your top concerns will be compliance and liability prevention. Recent legal activity has shown that fund administrators are increasingly held accountable for compliance, but you still maintain responsibility. Depending upon your business, you want to ensure the fund administrator you select can handle all of your needs. For example, is the firm set up to manage both your global and local regulatory requirements? Ask about the team who will be doing the work: what is their training and credentials? Who will approve the work, and what are their experience and credentials? Also, find out if the firm holds audit certifications.
5. Will this fund administrator be around for the long haul?
Outsourcing can be highly productive, but it creates dependency upon that third-party firm. If your fund administrator gets acquired, it can mean staff or technology changes that may not be smooth. That’s why it’s best to stick with firms that are long-term focused, so that lowers the chance of them getting caught up in any mergers or acquisitions activity.
On a practical note, you may be best served by choosing a privately held firm that is less likely to merge or be acquired. Ask the firm about its growth goals and get a comfort level that they are in it for the long haul.
Is a small or big firm a better fit?
Finally, you may want to consider whether a large provider or smaller boutique firm would be a better fit. While at first glance, a large provider may seem to provide a more secure solution, there are pros and cons to sticking with large firms. You may get the benefit of their organizational expertise, but experience levels among individual staff members might vary. There also might be more frequent staff changes that could impact your experience. Conversely, your experience with a proven boutique provider can be different. One plus is that your business is usually more important to a small firm, so you often get more attention. Small firms often have skilled staff that are used to working under pressure and with a variety of clients. Either way, it’s wise to explore your options so you can make the best choice possible.
Key takeaway
Bottom line, choosing the right fund administrator for your alternative asset fund management is a significant decision. Be sure to ask many questions. Each firm is different, so take your time and talk to several. Ask if they provide only the scope of service laid out in the agreement, or if they are willing to go beyond to help you stay focused on your core tasks. If you’re busy, you may find that a firm that acts as an extension of your staff may be the best choice to free you up to achieve your goals.
Are you looking for a tech-enabled fund administrator specializing in the alternative asset space? With six international locations and over $90 billion US under administration, Linnovate Partners is committed to helping alternative asset fund managers achieve better results through efficiency and superior technology. Learn more at https://www.linnovatepartners.com/.
