Navigating Fund Administration: Key Strategies for Emerging Managers (as featured in Emerging Manager Monthly)

In today’s rapidly evolving financial landscape, effective private fund administration has become essential for private fund managers. As the private fund sector continues to grow and evolve, and LPs look for higher returns, fund managers face increasing pressure to streamline operations, reduce costs, and focus on their core competencies. Consequently, there is a growing demand for specialized fund administration services, allowing managers to offload time-consuming administrative tasks and concentrate on raising capital and generating returns for their investors. 

Partnering with the right fund administrator provides access to cutting-edge technology, industry expertise, and operational efficiency. This partnership can also facilitate scaling your fund by enhancing reporting capabilities and attracting institutional capital. This article explores the key factors to consider when evaluating fund administration outsourcing options, the unique challenges faced by emerging managers, and the potential benefits of leveraging external expertise to enhance fund operations and investor relations. 

The Role of Fund Administration 

Fund administration plays a crucial role in the private funds industry, ensuring operational efficiency, regulatory compliance, and effective investor relations. As the complexity of the industry continues to grow, fund administrators have embraced advanced technology and analytics tools to extract meaningful insights, enabling them to provide valuable support to fund managers. This shift has allowed administrators to streamline processes and enhance efficiency, positioning themselves as strategic partners, crucial to their success. Some of the main functions and advantages are outlined below. 

Operational Efficiency 

Fund administrators can streamline fund operations by managing a variety of tasks such as accounting, reporting, and compliance. This operational support is crucial for maintaining accuracy in fund management, helping to reduce administrative burdens on fund managers. By leveraging the advanced analytics tools and expertise offered by modern fund administrators, fund managers can enhance their ability to interpret financial trends, evaluate investment performance, and keep their LPs informed with timely intel and updates. 

Investor Relations 

Investor relations management (IRM) is a key aspect of fund administration, involving the strategic management of relationships with individual stakeholders, potential investors, and institutional investors. Effective communication lies at the heart of IRM, fostering trust and engagement. Fund administrators handle investor inquiries, manage subscriptions and redemptions, and ensure that all investor communications are clear and professional. This helps maintain positive investor relations and satisfaction, which is crucial for long-term success, especially when looking to attract institutional capital. 

Regulatory Compliance 

Compliance programs have changed significantly over the last two decades, moving from a passive approach to a proactive one that uses large amounts of data to monitor and ensure compliance. Fund administrators play a crucial role in helping private fund managers navigate evolving compliance landscapes, particularly as regulatory frameworks become more stringent. They provide valuable insights into regulatory changes, offering guidance on how they may impact fund structures, reporting obligations, and overall operational procedures. 

Emerging Managers: Unique Challenges (and solutions) 

Emerging managers face a distinct set of challenges that can significantly impact their ability to establish and grow their funds. This includes limited access to capital, ability to stand out from a crowded market and a small talent pool to recruit from. 

Financial constraints 

One of the primary hurdles for emerging managers is limited access to financial resources. Launching a fund requires substantial capital, not only for investments but also for operational expenses. Historically, it has been difficult to find a fund administration partner that can provide the hands-on service an emerging fund manager often needs, matched with industry leading technology for an affordable price. Due to advancements in technology, and the industry, emerging managers are now able to find a partner that is able to tailor their services to meet their needs, whatever their size or strategy. Engaging with a potential partner at the earliest stage is important as it will save on costs and allow the fund administrator to develop and tailor their processes to meet the needs of their fund, providing the most efficient, effective, and scalable solution from day one.  

Competitive Landscape 

The private fund market has become increasingly concentrated, making it more challenging for emerging managers to secure a share of available capital. In 2023, the ten largest fundraises accounted for more than a quarter of total capital raised. This trend has led to a more cautious approach from investors, with a third of LPs less likely to invest in first-time managers compared to the previous year (https://www.moonfare.com/blog/the-case-for-emerging-managers). The competitive environment requires emerging managers to ‘level up’ and position themselves on a more global scale and leverage technology and reporting that LPs are accustomed to receiving from experienced managers. 

Talent Acquisition 

Attracting and retaining skilled professionals in a competitive job market can be difficult for smaller or newer firms. This can be true for both investment and operational team members. Engaging a fund administrator can remove this burden on the operational side as they will become an extension of your team, working alongside you, similar to how a direct team would do.  

Evaluating Outsourcing Partners 

When evaluating fund administration outsourcing, emerging managers should carefully assess potential partners based on several key factors to ensure a successful collaboration. This process involves assessing various aspects of the outsourcing provider's capabilities and expertise. Some of the most important aspects to consider are their service offerings, technology infrastructure and industry experience. 

Technology Infrastructure 

The technology infrastructure of a fund administrator plays a vital role in operational efficiency and data management. The developments in technology over the last few years means that fund administrators have need to innovate and update their workflows to keep up with the updated potential. Emerging managers should make themselves aware of the technology available to them through their fund administration partner, in particular the tools that are going to be accessed by their investors and those they will be accessing via their client access. Modern fund administrators have the potential to provide valuable business intelligence to fund managers that can help investor communication and day to day fund management. 

Service Offerings 

Fund administrators offer a wide range of services tailored to the specific needs of private fund managers. These services typically include accounting, investor onboarding & ongoing reporting and capital management. A comprehensive service offering allows fund managers to focus on their core competencies, such as investing and strategy, while the administrator handles back-office duties. When evaluating potential partners, it is crucial to ensure that their services align with the fund's operational requirements and can scale as the fund grows. 

Pricing Structure 

Pricing structure can be a critical element for emerging fund managers when selecting a service provider. Finding a fund administrator that truly understands the pressures and challenges that are being faced by emerging managers and reflect this in their pricing is vital for a successful partnership. Managers should ensure that they understand the full scope of services being offered by the fund administrator when reviewing their pricing, and the level of support and that they will be provided from the team. 

Industry Experience 

A fund administrator's industry experience is a critical factor in their ability to provide effective support. Experienced administrators bring extensive knowledge of industry best practices, regulatory requirements, and the latest technological advances. This expertise can be particularly valuable for emerging managers who may lack the resources or experience to navigate complex regulatory landscapes and operational challenges. When evaluating potential partners, it's important to consider their track record in serving similar funds and their ability to provide insights into successful strategies employed by other general partners in the private fund space. 

Conclusion 

The decision to outsource fund administration is vital for emerging fund managers. A careful evaluation of potential partners—focusing on service offerings, technology infrastructure, and industry experience—is essential for a successful collaboration. By leveraging external expertise, emerging managers can streamline operations, enhance investor relations, and position themselves for long-term success. Moreover, the benefits of outsourcing extend beyond operational efficiency; it helps build credibility and effectively navigate a competitive landscape.