Two commentaries on the fund administration industry recently caught my eye. Together they speak to the key capabilities investment managers need from their service providers, the opportunities and challenges that presents for administrators, and the IT infrastructure they need to deliver them.
Rapid technology advances, investor service expectations, cost pressures, evolving investment structures and rising compliance demands mean investment managers are turning to their service providers for support across an expanding array of areas. And service providers increasingly need an automated, end-to-end technology environment to provide that support.
Ultimately, those fund admins with the skills and technology tools to shoulder their clients’ workloads, and deliver efficient, seamless services that delight end-investors and keep regulators happy will make themselves invaluable partners – with sticky relationships and strong revenue streams to match.
The changing fund admin service model
As one of the articles observed, seismic industry shifts are changing the role fund administrators play, and will create a future service model that looks very different to today.
The piece highlighted four key trends:
- Globalisation of the investment industry – with funds, borrowers, originators and investment structures increasingly international, there is a growing need for fund administrators with multi-jurisdictional expertise able to deal with the complexities of different regulations and tax laws.
- New asset classes and investment structures – surging allocations to alternative assets are increasing demand for administrators with the systems to automatically allot income and expenses for different fund structures, produce complex waterfall and fee calculations, generate performance metrics and provide granular, customised reporting. The continued emergence of new esoteric instruments and fund structures adds to the complexity.
- Data management – fund administrators must wrestle with the vast and ever-expanding data volumes that have become so crucial to investment decision-making, regulatory compliance and investor engagement. How well administrators can manage the flow of accurate, timely data into and across the organisation, and generate insights to feed out to stakeholders will be fundamental to their success.
- Regulatory changes – administrators play a central role in ensuring funds comply with their legal obligations. As global laws and regulations evolve, administrators need to ensure their knowledge, processes and IT systems keep pace so they can provide the compliance support their clients seek.
Partnering with a fund administrator with the people and processes to deliver comprehensive multi-jurisdictional and multi-asset class capabilities across these four areas could have a massive bearing on an investment manager’s own success. Yet with more than 2,000 providers in the UK and Europe, and 1,000 in the US to select from, hitting on the right relationship is no simple task.
Key criteria to look for in a fund administrator
Which brings me to the second article: how to choose the right fund administrator.
Choice of service provider will have long-term implications for investment firms’ business performance, reputation and growth potential, so the stakes are high.
Key criteria to look for are:
Expertise and experience
Funds have become more complex. An administrator needs to understand and be able to support the complexities of your funds – and potential future areas of activity – to ensure “accurate accounting, investor reporting, and compliance.”
Scalable solutions
You want to grow your business. That entails adding assets to existing funds and/or expanding into new asset classes and markets. A fund administrator needs the automated capacity to support that growth, while maintaining the flexibility to provide tailored services where required.
Service quality
Almost a quarter of the limited partners surveyed for Gen II Fund Services’ 2023 Fund Administration Technology report said they are somewhat or very dissatisfied with their fund administration. Service dissatisfaction can poison managers’ long-term relations with clients. Service quality is multifaceted, but includes providing seamless account maintenance and complex fee calculations; automated NAV processing; timely, customisable reporting; and fast, accurate regulatory filings.
Fee structure
No one wants to be hit with unexpected fees, or feel they are paying over the odds for a service. A transparent fee structure gives managers a clear understanding of what they are being charged for the services they receive. Automation in turn allows administrators to streamline their own expenses and remain cost competitive.
Technology and infrastructure
According to the Gen II survey, 48% of large institutional LPs are a lot more likely to invest with a fund sponsor that uses automation in fund administration. Advanced technology “enables efficient data management, reporting automation, and secure data access, improving operational efficiency and minimizing errors,” it noted.
Does the fund administrator’s technology infrastructure offer the automation and rich functionality required to meet your short and long-term goals?
Sub-standard technology can have severe knock-on effects on internal efficiency, client relations and regulatory compliance. So it pays to have the solutions you need.
I wanted to conclude the article with this section – readers tend to remember the first and last sections of what they read, so I wanted them to go away with the technology message.
ABOUT DEEP POOL
Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.