How to pick a third-party fund administrator

Partnering with the right administrator allows emerging fund managers to focus on growing their business and spotting the next opportunities. Here’s how to find a high-quality fund administrator.

Fund managers are faced with many challenges. Complying with evolving regulation and meeting investors’ demands for complex data often gets in the way of what they do best: raise and invest capital.

Expert third-party fund administrators understand the complexities of the alternative investments market and can prevent costly errors in an increasingly complex regulatory environment.

How do you pick the right fit? Put cost considerations to one side at first. Instead make it your priority to find a provider who can identify your unique requirements and the risks you must minimise. Then make sure they can deliver prompt, accurate and adaptable services.

While false economies are likely with low-cost providers, very costly fund administrators can struggle to justify their rates, especially where emerging fund management partnerships are concerned. Avoid that ‘value trap’ by analysing closely both your own service needs and the efficiency of third-party administration.

Low and high cost services can both bring problems

Perhaps the proposal costs just a few thousand dollars a month. Yet fund managers engaging low-cost providers often end up hiring in-house staff – at great extra expense – to bridge the gaps that appear.

The danger, in effect, is that investment managers fall into a ‘bait and switch’ predicament. But pay big sums for third-party fund admin and you may not receive the individual attention you require. You may be obliged to squeeze into a one-size-fits-all provider platform.

This ‘value trap’ risk is prevalent among newly founded and emerging operators in private capital, private equity, alternative investments, hedge funds and venture capital.

New managers are likely to lack admin skills

Understandably, emerging managers tend to focus as much as possible on identifying and managing investments as well as attracting fresh capital. Fund admin is vitally important but it is rarely among the core skills of new and growing partnerships.

To secure genuine value for money, fund managers are best advised to spend quality time researching their fund admin needs and the quality of shortlisted providers or in-house capacity.

You should consider fund administration as a first line of defence. Here are some key questions:

• Will your provider anticipate potential issues before they become problems?
• Will your provider solve problems without taking up too much of your time?
• Do its processes have quality controls built in?
• Can the service expand, or contract, according to your needs?
• Can it operate in all relevant jurisdictions?

It’s also important to consider if your provider can help with changing work patterns. These could include:

• Flexible coverage
• Environmental, social and governance (ESG) imperatives
• Cybersecurity
• Business continuity

Looking further ahead, does your fund administrator have capabilities in the following areas?

• Handling multiple fund structures, such as open-ended and drawdown structures, separately managed accounts, fund of one, etc.
• The institutional framework to handle varied asset classes
• Compliance and investor relations
• Customisable solutions to handle investor demands

Technology and service level agreements (SLAs)

Technology is ubiquitous. It brings accuracy and speed – but only if the platform is flexible and robust. Fund admin tech must be able to synthesise varied sources of data from multiple formats quickly.

Think, for instance, of net asset value (NAV) computations. To be fit for purpose, they may have to be generated within a reasonable time after the period end, and in a way that may only be possible with reliable technology lodged within strong process frameworks.

In practice, the quality, efficiency and speed of third-party fund admin is largely determined by a service level agreement between the fund manager or partnership and the provider.

Effort and time spent securing the ‘ground rules’ is rarely wasted and can avoid significant and wasteful frustration down the line.

A good SLA sets out the scale and scope of fund admin services. Agreements may also outline services that may be added or set aside as circumstances change. This sort of planning is preferable to renegotiating the entire SLA every time adjustment is needed.

When is the best time to change?

You can change your fund admin framework at any time. It is sensible, however, to synchronise it with the start of a new reporting period. The amount of transitional work required will depend, at least to an extent, on your preferences about the amount of historic information reassigned to a new provider and the quality of the inherited data.

Why Intertrust Group?

• Intertrust Group has the subject matter expertise, experience, technical skills to deliver high-quality fund admin services for private capital clients throughout a fund’s life cycle.
• We help with the administration of more than USD600 billion of client assets and have over 4,000 employees across the world, combining global and local expertise.
• We have expertise in all private capital asset classes, focusing on bespoke corporate, fund, capital market and private wealth services, enabling our clients to invest, grow and thrive anywhere in the world.