The private funds industry has undergone considerable transformation over the past few decades. Prompted by growing investor demands for transparency, stricter reporting deadlines, and navigating AML and KYC processes, running a fund is a lot different than it once was. Today, Private fund managers face the monumental decision of building a robust fund operation internally or engaging a fund administrator to handle these tasks so they can focus on the next capital raise. The significant investment in hiring an experienced team and investing in technology and processes can be overwhelming for private funds managers when faced with other high-priority tasks that demand their attention. If this resonates with your experience managing private capital, it may be time to explore partnering with an experienced fund administration provider.
What Do Fund Administrators Do?
In the early years, fund administrators were merely seen as a ‘check-the-box’ requirement, enabling fund managers to focus on raising capital and portfolio management while giving investors peace of mind in the form of third-party oversight. Although fund administrators were gaining business, they relied heavily on human labor to complete tasks. They employed large, young teams with a smaller number of managers providing oversight. Investment in back-office operations was minimal as it didn’t immediately enhance the bottom line. It took a while and a few high-profile incidents (i.e., Long-Term Capital Management and Bernie Madoff) before true institutional-grade fund administration operations were introduced.
Fund administrators today look and operate a lot differently than they did. They offer a wide range of services across back, middle, and front offices, extending well beyond the traditional preparation of a fund’s books and records. Serving as trusted advisors and partners to private equity and venture capital firms, leading fund administrators drive technological innovation, possess deep subject matter expertise, and act as strategic business partners to private fund managers across the fund life cycle, becoming integral components of a firm’s operations.
How are Today’s Fund Administrators Transforming the Industry?
The success of fund administrators lies in the synergy of people, insight and ingenuity. As competition in the fund administration industry intensified, fee compression pushed fund administrators to seek ways to improve margins by expanding their service offerings and enhancing efficiency through strategic investments in people and technology.
Fund administrators continue to invest in technology to boost operational efficiency while also expanding their service offerings beyond traditional administrative tasks. Increasing regulatory demands necessitate more robust compliance practices, and investors expect quicker and more comprehensive reporting. Previously siloed practices across back, middle, and front offices are now integrated, creating streamlined processes powered by technology and intricate workflows. At the center of these technological improvements is data: Easily accessible data that can be understood and leveraged for different purposes.
While technology is known to improve internal operations, it also helps attract talent. The growing complexity of technical requirements calls for skilled professionals who can envision, build, implement, and support innovative solutions. It is these people who possess the insight to create solutions private fund managers need (or don’t know they need yet) while having the ability to build relationships as their trusted advisors. Leading fund administrators recognize the importance of attracting and retaining top talent – talent that understands how to tailor services to meet the unique needs of clients.
What’s Next
The role of fund administration in private capital management has evolved dramatically. Today, fund administrators differentiate themselves through a combination of skilled personnel, proven processes, and innovative technology. They go beyond solely providing accurate financial statements to playing an integral role in fund operations across the front, middle, and back offices. In the future, fund administrators will leverage AI and other technologies to become more efficient in not only providing the services they currently do but offering reporting and analysis for ESG and portfolio company activities.
By integrating technology with expertise, they streamline operations and provide comprehensive services throughout the fund’s life cycle. As the industry continues to evolve, those who leverage experienced fund administrators will be best positioned to navigate the complexities of a quickly changing industry.