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April 9, 2020

It's a Long-Term Commitment

5 Considerations When Evaluating the Best Fund Administration Partner for Your Business

The to-do list can seem daunting for investment managers looking to raise capital for their first fund. Walking through legal setup, studying and sitting for exams, finding office space, putting together a compelling pitch, and selecting the right service provider partners can be a heavy load to carry.

Choosing a fund administration partner is one of the most high-pressured decisions investment managers make when launching a fund. They want to ensure they select the right fund administration partner to help them grow their business – and there are so many fund administrators to choose from that the decision can be taxing.

The choice, however, is critical. Why? Besides the prime broker, the fund manager will have the most interaction with their fund administrator. Additionally, the fund administrator, in many instances, will have direct communication with fund investors.

A strong fund administration provider can boost an investment manager’s reputation, instill investor confidence, and reduce risk. An unfavorable fund administration partner could not only tarnish the investment manager’s reputation, but also cause investors to withdraw capital from the fund, and even create compliance issues.

So, how can an investment manager ensure they choose the right fund administrator from the start? With over 75 years of collective fund advisory and management experience, we leveraged our expertise to suggest the following 5 considerations when choosing the best fund administrator for your business.

ONE: PRICE ALONE SHOULDN’T BE A FACTOR

We are all familiar with the age-old saying, “You get what you pay for.” Well, it applies in this situation too. When evaluating a fund administrator, kick the tires a bit. Understand their culture and what type of employees the firm attracts. Are they well known in the industry? Is the senior management team involved in business operations, and if so, will you have access to them? Does the firm have high client turnover?

Spending the time to get to know a fund administrator will help you make a strong choice that is not solely based on price.

 

TWO: EVALUATE “TYPICAL” CLIENT PROFILES

Fund administrators work with investment managers who employ varying investment strategies and who have different levels of experience. For example, some fund administrators work with emerging managers and have developed processes to help onboard new clients, providing them with the high touch service they often require while managing costs. Others may specialize in working with investment managers who trade complex securities. These fund administrators invested in acquiring the technology to account for the hard to value securities properly, and they also train their staff on how to analyze and account for these securities. Their pricing reflects their specialized offering and the added value they will provide investment managers.

Take the time to understand a fund administrator’s “typical” client profile to determine if your firm would be a good fit.

 

THREE: DO YOUR DUE DILIGENCE

Gaining an understanding of a fund administrator’s infrastructure is critical when choosing a partner. You will want to know the technology they use, what their control environment looks like, what comprises their standard Service Level Agreement (SLA), and the experience of the servicing team. Ascertain if the fund administrator will have contact with fund investors and what type so that you can fully evaluate whether the firm will be a good fit for your business.

FOUR: REPUTATION IS EVERYTHING

Choosing the right fund administration partner can have a significant impact on your business. Just like you would ask friends or neighbors for a recommendation on an honest plumber before remodeling your bathroom, you should seek referrals from peers and other service provider partners for a fund administrator.

Determine if all the awards and accolades are just for show or if the fund administrator is the real McCoy. Ask around to learn more about the fund administrator’s reputation, how they treat their clients, and what their employees have to say.

 

FIVE: HAVE YOUR PARTNERS IN PLACE BEFORE FUNDRAISING

Having all your service provider relationships in place prior to fundraising can instill confidence in investors. As a first-time fund manager, demonstrating how serious you are about running your business and aligning yourself with reputable partners who will oversee critical aspects of the fund operations will assure prospective investors.

IT'S A LONG-TERM COMMITMENT

 

Launching a fund is not an easy venture. It is important to carefully evaluate service provider partners, particularly the fund administrator, to ensure the investment manager’s goals and expectations align with the service providers offering and expertise. Keeping the five considerations we shared in mind when having conversations will assist in your decision-making process. Remember, forming a partnership with a fund administrator is a long-term commitment. Take your time and do your homework before placing a ring on that finger.

 

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