In the new normal, outsourcing presents the opportunity for strategic partnerships that provide solutions to investment managers experiencing increasingly formidable fund administration requirements and challenges.
The pandemic of 2020-2021 continues to affect the private equity markets, causing general partners (GPs) of all sizes to re-evaluate their operating models with a longer-term view on opportunities for improvements that benefit their business and their investors.
How do you find the right strategic partner?
Finding the Right Partner
To reap the benefits of an outsourcing relationship, there are a number of critical factors to consider when selecting the right strategic partner for fund administration:
The ability to meet the current and future needs of you and your investors requires a proven, substantive platform with the level of automation, scale, control, and security expected in an industry leading solution. It must deliver transparency and efficiency to you and to the investor experience. Using a secure, sophisticated platform provides a more controlled and reliable environment for data input and outputs. It mitigates the risk inherent in using spreadsheets, and allows for transparent and secure reporting. State-of-the-art investor portals allow fund managers, GPs and LPs to access online, real-time data and reporting.
The cost of investigating, implementing, and maintaining relevant technology can be expensive and overwhelming for individual managers. Partnering with a fund administrator who already invests in these platforms allows fund managers access to advanced technology while avoiding much of the cost, process and time commitment of in-house implementation and ongoing maintenance.
People & Culture
Sudden growth, changes in fund complexities, and the desire to attract institutional investors can all drive the need to hire staff at a direct expense to the firm when the fund’s back-office work is being done in house. Choosing the right strategic partner for outsourcing fund administration provides a relationship that grows and flexes with a fund manager’s needs. Fund Administrators who serve as an extension of the fund manager’s team become a valued contributor to the business plan.
Relationships, communication and technical expertise are the foundation for a successful Fund Administration partnership. Whether you are a first-time firm with AUM of $50M or an established firm with AUM of $20B+, choosing the right Fund Administrator is essential. Cultural fit, technical ability, and capacity are all critically important; a fund manager is not just partnering with a Fund Administrator but instead are partnering with the human capital of the firm.
Controls and Procedures / Best Practices
As limited partners, or LPs, become more sophisticated, they are requiring more of fund managers, notably in the way of tighter processes and controls. Many institutional investors require fund managers to hire a fund administrator with industry-accepted credentials such as the SSAE18 SOC 1 Type 2 Audit Report. The Fund Administrator you select should provide customized solutions and workflow processes within a controlled environment, helping to reduce risk and potential errors.
LPs also focus on both disaster recovery and cybersecurity policies. The Fund Administrator selected should have documented and tested policies in these areas as well as a clearly defined business continuity plan, which details the process for continuous service and access to client data, should a disruptive event occur.
Experience with Increasing Fund Complexities
Experience shows that fund managers face significant increases in the complexity of their operations, resulting from expanding their product offerings into non-traditional PE and RE investments (e.g., credit, middle-market, infrastructure) and increasing regulatory reporting requirements.
Private Equity funds have evolved from simple, stand-alone limited partnerships to highly complex structures. Creating multiple vehicles within each structure also means complicated allocations and fee calculations. While these complex calculations may be handled in spreadsheets, that carries risk and is a warning flag to larger institutional investors who may want to invest in the fund.
The largest investors have become more demanding in terms of fund reporting. Investors routinely request more detailed quarterly reports with extensive capital account statements, to be delivered within days after the quarter ends. The result is less standardization and far more customization. For managers, meeting these challenges is time consuming, expensive, and difficult.
The Ability to Meet LP and Institutional Investor Demands for Reporting and Transparency
Limited partner involvement in the Private Equity world has evolved to encompass a more sophisticated and institutional investor base. It has become routine for institutional investors and their operational due diligence teams to question valuation risk and transparency reporting. As GPs build more complex fund structures to fulfill LP needs, the need for increased reporting transparency builds as well.
All of this has driven GPs to examine all aspects of administering a fund. Recognizing the growing need for specifically talented staff supported by industry-leading technology in a controlled environment of best practices has led GPs to new considerations: a strategic outsourcing partner that understands LPA mandates, operational deliverables, and technology that can support fund complexities.
The rapidly changing need for transparency is the key to staying ahead of the evolving private equity administration requirements, being equipped to offer investors a high level of operational confidence in information provided securely and in real-time. As the result of the growing costs and complexities of supporting these requirements, a strategic partnership with an outsourced service provider offers critical advantages.
Grow with Ultimus LeverPoint
As funds grow and their complexities multiply, the impact of having to hire, train and retain staff to support a back-office functions also becomes greater. Gain economies of scale with a qualified Fund Administrator such as ULP. With an effective co-sourcing model, the responsibility for attracting and retaining skilled talent falls on the administrator, who can pool resources across a broad client base, reducing the fund manager’s skills-related risk.
Making the decision to outsource Fund Administration services is one of the most astute decisions fund managers can make because it boosts efficiencies for their firm and their investors. As reporting demands grow and the need for transparency intensifies, having the right Fund Administrator becomes even more important.
You’ll gain a more efficient business process that mitigates common risks and enables you to focus on your core competencies while providing your investors a level of comfort that comes from third-party independence.
Ultimus LeverPoint leverages both technology and a flexible servicing model that enable GPs to adapt to the new environment and enhance the investor experience. A robust architecture allows ULP to deliver quality services and increase productivity to meet the needs of our clients. Our responsive service model focuses only on the core activities of fund administration. Since we are an independent service provider, our dedicated teams and services won’t be disrupted by the budget cuts, service reductions, downsizing, offshoring and outsourcing.