Centaur outlines five factors that should be considered when selecting an administrator
New York, July 20, 2023
Private Equity has gone through considerable change in recent years: With unpredictable markets, rigorous regulatory requirements and an increasingly sophisticated client base, there is a clear and growing trend for private equity firms to outsource their fund administration. At Centaur, we are seeing first-hand, the wave of General Partners (GPs) making the move to administrators who have the dedicated technology, expertise and infrastructure to deal with the increasing complexity of the private equity fund business. Close to 50% of our clients transferred from administrators who were failing to meet the service level expectation of GPs and Managers.
But as a General Partner, how do you know how well your funds are being administered? Can you expect your administrator to scale with your business in the future? Is their technology infrastructure working to help you accomplish your business goals? These are not uncommon questions – and if you’re asking them, you’re not alone.
There is little doubt that Limited Partners (LPs) are constantly on the lookout for inefficiencies in their fund performance – such as poor reporting or a lack transparency – and will look to their GPs if there are any obvious weaknesses or inefficiencies. To ensure you get the most out of your administrator, Centaur offers five key factors to consider to ensure your portfolio reaches its full potential and outperforms your competition.
- EXPECT THE BEST FROM YOUR ADMINISTRATOR
One of the keys to a successful relationship with your administrator is communication, especially at the outset of the relationship. Operational stability is core to a successful transition service, so it is essential that your administrator obtains a full understanding of your fund’s existing operations and structure, including all SPVs and co-investment vehicles. An experienced administrator will tailor their service model around your requirements. A good first step is to go through a due diligence process and implement a service level agreement (SLA), which lays out responsibilities as well as agreed upon deliverables. Once you are up and running, regular operations meetings are key to ensuring both sides stay in regular contact to review the SLA, discuss what is working and what is not and to share any new initiatives.
- ACCURACY IN DATA COLLECTION, INTEGRATION AND REPORTING
Technology is a critical component of a successful administrator. As fund administration complexity and regulatory burdens grow, technology is playing an increasingly critical role in the fund administration process. Any fund administrator worth their salt needs to offer immediacy, personalization and transparency, all on an accessible and secure platform:
- Funds store data in different formats, from spreadsheets to complex databases, which the administrator must collate and integrate into its technology platform. Bringing both financial and non-financial data from disparate sources into a new system can be a mammoth task that can reveal previously unseen opportunities and risks. It is crucial for the fund administrator to have robust systems and processes in place to facilitate the accurate collection and organisation of your fund’s data.
- Reporting: Not all portals are created equal. Small and emerging funds need to be handled differently to large funds and reporting solutions should be customized to suit each fund’s requirements. The fund administrator’s role is to consistently deliver accurate, timely and transparent reports to all stakeholders from a secure platform. Anything less should not be acceptable.
However, it’s important to note that technology should not replace person-based client service, which is still the bedrock of the fund administration business. The administrator should act as an extension of the GP, getting on the phone with them to discuss best practice, and continuously learning and adapting to regulatory and market changes.
GPs must be able to view how their funds are performing 24x7 to ensure they have the information that allows them to make good decisions. This performance visibility comes from consolidated technology systems that are flexible, secure and transparent. There should be no tolerance for inaccurate, inaccessible or omitted data. Fund administrators should have established data governance guidelines and procedures to enable accurate and timely reporting to GPs to ensure they have exactly what they need, when they need it.
- COMPLIANCE AND REGULATION EXPERTISE
As compliance and regulatory demands become more stringent, GPs are under the spotlight to deliver a huge array of complex information accurately and on time and are turning to fund administrators to fulfil these ever-increasing obligations. As part of the due diligence process, GPs are increasingly considering their fiduciary obligations to all stakeholders and are looking for administrators to take on more of the regulatory and compliance reporting burden. The best administrators will have dedicated teams and strategies in place to accommodate their GP clients’ needs. A good compliance team does much more than track compliance activities for regulators – it offers a robust compliance framework that proactively protects its clients against financial and reputational damage and creates a centralised source of compliance and regulatory guidance. Of course, risk can never be eliminated, but taking proactive, documented steps to minimise it wherever possible can have dramatic benefits and improve a fund’s competitive advantage.
Accountability counts. There is no doubt that cost and the ability to service often complex products are important factors for a successful relationship with an administrator. However, relationship-based factors such as client service and reputation are also vital to the long-term partnership between a fund, GP, LP and the administrator. Administrators must take accountability for their actions and should sign up to detailed deliverables in legally binding agreements to ensure that their funds are managed appropriately.
WANT TO LEARN MORE?
Contact Centaur's dedicated PERE Team to discuss how we can help ensure a smooth transition: