Why Are Fund Administrators Getting Fired at Alarming Rates?


administrator-8-25-17.pngPrivate fund managers are showing an increasing penchant for firing their fund administrators. A new report by the alternative investments data and research firm Preqin shows that 21 percent of fund managers changed a service provider in 2016, and of those, 36 percent changed fund administrators.

While that figure is alarming in and of itself, the trend for fund administrators is unfortunately heading in the wrong direction, as this is a 29 percent increase from 2015. All indications are that this will continue in 2017, as the report shows that 72 percent of private fund managers review their fund administrators at least annually, with 30 percent doing so every single time they bring a new fund to market.

Have fund administrators lost their way, or are they being scapegoated by their own private fund manager clients? The study lists the primary drivers given by fund managers for this level of firing as:

  • Dissatisfaction with quality of service provided (27 percent)
  • Cost (23 percent)
  • Increased portfolio complexity (23 percent)
  • To cope with regulation (23 percent)

The inability to help clients deal with more complex portfolios and cope with regulation would both contribute to a dissatisfaction with the quality of service being provided. These factors are interconnected.

As such, I would argue that the overwhelming reason that fund administrators were fired in 2016 is because of the lack of service they are providing to their private fund manager clients.

Going one level deeper, I also feel that a lot of this discontent is driven by a lack of modernization. The alternative investment industry is overwhelmingly document-based and manual in nature. The wave of technology-driven automation and efficiency that has swept through other areas of financial services has only recently started to impact alternative investments.

A peek under the hood of how a private fund is managed and administered would reveal an industry seemingly stuck in the 1990s, with manpower typically being the biggest determinant of the speed and quality with which the industry operates.

Private fund managers are tiring of the difficulty they are experiencing with their fund administrators over critical and repetitive actions. Things like getting monthly financial packages completed, formalizing agreements and sharing validated information with stakeholders is too difficult in an age that values simplicity and convenience.

The other factor that is at play here is that fund managers themselves are under increasing pressure from their investors. Many fund administrators and private fund managers alike forget that the same person that is invested in a private equity fund has banking and brokerage accounts at a bank or credit union.

These people are used to being able to see and interact with their information digitally on a laptop or a mobile device, be able to take certain actions in a self-service manner, and access their information at any time. Customers are frustrated about dealing with a fund manager who only delivers performance metrics in a document via email. To make matters worse, the volume of documents increases the more investments that investor has.

So why does it seem like fund administrators are bearing the brunt of the industry’s lack of modernization? The fund administrator is the backbone of it all. They have not only become the conduit for interactions between the investor and the fund manager, but also that for interactions between the fund manager and the fund administrator themselves.

Private fund managers are increasingly looking for their fund administrators to provide them the tools to better manage their funds and service their investors. As evidenced by the Preqin study, private fund managers are showing an easy willingness to change to a fund administrator that they feel gives them what they need.

Fund administrators that are absorbing this message are starting to take the right steps to address the quality of service that they provide to their clients. They are taking actions like creating investor relations teams that can better handle communications with clients and investors.  They are adopting technology that will automate manual processes between themselves and their clients, as well as make the needed transition to be able to present investment metrics in dynamic and interactive digital dashboards rather than in static documents.

These are the types of actions that fund administrators will need to take to ensure they are on the right side of the firing line.

How Technology-Enabled Fund Administrators Can Help Family Offices


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The unprecedented spike in the number of millionaires in the United States has led to a significant increase in family offices as people of wealth are turning to Single Family Offices (SFOs) and Multi-Family Offices (MFOs) to help them manage their wealth. Many of these family offices offer a full suite of solutions including investing, budgeting, insurance, charitable giving and tax and legal services.

As has also happened with hedge and private equity fund managers, family offices (especially MFOs) will need to turn to fund administrators for help. Because many family offices have grown to become complex and sophisticated financial firms in their own right, and they have the same needs as other private fund managers do, including:

  • Report on investment performance in a digital format.
  • Provide transparency of data to comply with regulatory requirements.
  • Deliver operational efficiencies in such areas as investor communications, document distribution and more

There were almost 11 million millionaires in the U.S. in 2016, which was the most ever recorded, and a 4 percent increase over 2015. Depending on the source, the number of SFOs in the U.S. is anywhere from 3,000 to 6,000. Big dollars are at stake, with family offices controlling an estimated $4 trillion in investment capital worldwide. For context, private equity and hedge fund firms are estimated to have $5.7 trillion in investment capital.

Multi-family offices have also experienced strong growth of late. There are an estimated 1,500 MFOs with assets under management of nearly $450 billion, and their number is expected to keep growing as higher costs, lower margins and competition for capital are forcing them to search for operational efficiencies. These factors are also persuading SFOs to merge and become MFOs.

Due in part to the sophistication of the private equity and hedge talent migrating to these offices, along with the increasing deployable capital, family offices are investing more in complicated asset types including equities, real estate, fixed income and private equity, as well as hedge funds. Further, direct investments in these areas have increased dramatically, constituting close to 30 percent of an average family office portfolio.

As technological capabilities are inexorably linked to their key needs, family offices are realizing the importance of technology to their future success. They are also understanding that going it alone is often a difficult option.

Many family offices struggle to understand and manage complex technology offerings, while also meeting the need for deeper service capabilities across accounting, tax and more. Small in-house administrative teams at family offices quickly find themselves over whelmed as the combination of complex transactions and regulatory pressures prove too difficult for them to handle.

These factors will pressure family offices to seek out fund administrators that are best equipped to help address these evolving needs. Over the past few years, fund administrators have been going through a metamorphosis of their own, moving from viewing themselves as offering services focused solely on traditional accounting to becoming a key strategic advisor to private fund managers. This is true across not only accounting services, but also in complicated areas like investor relations, compliance and operations.

The demand for third-party validation of asset values and investment performance is also becoming a bigger factor for family offices, and fund administrators are uniquely positioned to deliver on this need as well.

Lastly, families can sometimes be fickle, and emotions tend to grow more intense as more money is at stake. Family members change through marriages, children, divorces and deaths. A strong and independent voice is critical to not only provide validation and transparency, but also objective guidance that can be taken at face value by family members. This factor increases exponentially with the addition of each family to a family office.

As family offices look to fund administrators to fulfill their needs, they must avoid the common trap of basing their selection mostly on the quality and pricing of the traditional accounting services offered by the fund administrator. Rather, family offices should give equal importance to the technological experience and capabilities of the fund administrator across areas like investor relations, operations and compliance.

Any family office that decides to go it alone will need to make sure to select the right technology provider that can help them not only with the front-end digital performance reporting and communications, but also with the operational middle and back-end of data preparation, analysis, and distribution.