Strategic Benefits of Outsourcing Fund Administration

A Deep Dive Into the Benefits of Outsourcing to a Fund Administrator in the Private Equity Industry

Dec 05, 2023

| Blog | Client-Centric | Data Management | Private Funds | Technology and Innovation

Outsourcing fund administration services has emerged as a strategic imperative for fund managers seeking to streamline operations, enhance efficiency, and optimize resource allocation. In a time of increasing regulatory scrutiny and growing demand for more sophisticated financial products, the pressure on fund managers and investment firms to maintain meticulous records and meet compliance standards is growing. By outsourcing, firms can avoid several roadblocks, such as capacity limitations, technology costs, and scalability concerns.

In recent years, outsourcing to a third-party administrator has become widely accepted as an industry standard as operational complexities increase, and limited partner pressures continue to constrict managers. Traditionally, most fund managers opted to keep fund administration in-house, yet the growing volatility, uncertainty, and complexity of the fund world and investor expectations have made self-administration a mounting distraction.

The increasing complexity of fund types and structures is taxing manager resources and expertise, while more sophisticated investors are driving the demand for independence and continued investments in technology, controls, and transparency. Outsourcing allows fund managers to focus on the people, processes, and technology needed to tackle the evolving financial reporting requirements and expectations of funds and their investors.

People

Relationships and communication are the foundation for a successful fund administration partnership. Cultural fit, technical ability, and administrator capacity are all critically important factors to consider when selecting a fund administrator. It is imperative that a fund manager recognizes the partnership goes beyond that of the fund administrator, they are also partnering with the human capital of the firm. Fund administrators should be viewed as an extension of the manager’s team, a strategic partner, and a valued piece of the business plan. The goal of this relationship is a long-term partnership that grows and adapts with a fund manager’s needs.

Process

Limited partners are growing in sophistication and expect more from their fund managers, such as notably tighter processes and controls. Many institutional investors require their manager to outsource their fund accounting and reporting to a fund administrator with industry accepted credentials, such as the SSAE18 SOC 1 Type 2 Audit Report (System and Organization Control Report). The SOC 1 report is the most sought-after credential as it confirms that a fund administrator has the proper controls and procedures in place to reduce risk when it comes to potential errors. Limited partners also focus on both disaster recovery and cybersecurity policies. The chosen fund administrator should have documented and tested disaster recovery and cybersecurity policies, as well as a business continuity plan, which lays out the process for continuous service and access to client data in the event of disruptive incidents.

Technology

In recent years, private equity firms are relying more heavily on robust technology products for accurate and timely responses. Fund administrators understand that having enhanced software and analytics specific to the alternative investment industry is paramount and allows them to offer and maintain reliability to their clients. Sophisticated platforms such as Investran, eFront, and VPM allow data to be tracked and maintained securely and contributes to transparent and secure reporting. These platforms support data input and output to be performed in a more controlled and reliable environment, minimizing the risk that can be found using manual excel spreadsheets. Access to state-of-the-art investor portals allows fund administrators to store and distribute investor correspondence through a secure web-based platform and provides access to online real-time data and reporting to fund managers, general partners, and limited partners. While the cost to invest in the right technology can be expensive and overwhelming to individual managers, partnering with a fund administrator who already invests in these platforms can reduce these obstacles by avoiding much of the cost, process, and time commitment of in-house implementation and ongoing maintenance.

Capacity to Focus

Managers face an ever-increasing challenge when they divert their focus from portfolios and investments to manage reporting requirements as mandated by their limited partnership agreements. To manage these competing priorities, outsourcing to a fund administrator enables managers to focus on their core responsibilities and do what they do best: manage deals and investment strategies. Outsourcing allows fund managers to focus on providing a maximum return on investments for their investors, concentrating on providing resources and expertise in evaluating and making deals, and investing and implementing unique investment strategies.

Conclusion

Determining to outsource fund administration services is one of the most significant decisions a fund manager can make as it impacts efficiency both for themselves and their investors. As reporting demands grow, the need for transparency increases and the importance of partnering with the right fund administrator is more impactful than ever. Partnering with the right fund administrator is more significant than ever for both fund managers and their investors. Engage with a fund administrator that is dedicated to people, process, and technology. Reach out to Ultimus LeverPoint to discuss how outsourcing can benefit you. High-quality service from our client-focused professionals who are committed to utilizing industry leading technology will increase your capacity to focus on deals and investments. We are here to partner with you to remove the complexity of your day-to-day administrative burden and provide you with boutique services backed by institutional strength.

ULP #17669920 12/5/2023

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DISCLOSURE: Information contained on this website is based on public data, historical agreements and dialogue with intermediaries. Such information represents our current understanding of the described platforms and the costs associated with them. In many cases, such costs may be negotiable. All pricing and fee information is subject to change without notice.

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