November 23, 2020
Whether you are a new fund planning your first steps or an established group managing multiple funds, selecting the right administrator will be critical to your success.
So, you’re looking for a partner you can trust through thick and thin. You want a recognizable name that has been there and done that. But where to start? It may be difficult to know exactly what to evaluate when selecting an administrator. Not to worry, the following guide will help you cover the essentials.
The ideal administrator will have:
1. Skilled and knowledgeable team members. A general precursor to getting the results you desire is finding a team you trust. Thus, finding the right personnel should be one of your biggest priorities. These are the individuals that embody their firm’s ability to communicate clearly, report accurately and execute in a timely manner. Will they be there for you when you need them? Will they offer impact and actionable insights? Will their work be delivered in an accurate and timely manner?
On the subject of personnel, it may be worth reviewing the administrator’s employee retention rates. There is a great deal of value added if you are able to work with the same individuals year over year. It ensures that there is continuity of training regarding your specific needs and processes which will ultimately result in increased accuracy and efficiency.
2. A credible and proven track record. This by far one of the best and most reassuring testaments of an administrator’s abilities. You need to ensure that you are comparing apples to apples here. Dig deep enough to find other clients that had comparable needs to yours. Has the administrator been able to handle the same level of complexity or customization for others? What is their client retention rate? What are the reasons they have lost clients in the past?
3. Proven infrastructure. After you feel confident about the people and their ability to deliver quality work, you must ensure they are backed by solid and resilient infrastructure. The administrator’s internal systems should be able to quickly recover from incidents. Does the administrator’s disaster recovery and business continuity plans to ensure proper up-time for your funds business initiatives?
4. Secure and defined processes. When it comes to your data, security is of paramount importance. As you begin discussions with any administrator, you will need to ask for their System and Organization Controls (SOC) reports. These reports are generated by an independent auditor and provide written verification of internal financial and security controls. If done correctly, they should offer investors a high level of confidence that the administrator’s processes are secure, repeatable, and that there is someone consistently testing the integrity of the outputs.
One of investors favorite parts about back office outsourcing is that it adds an extra layer of security. Because fund administrators are an unbiased third party, investors sleep better at night knowing there is an independent group overseeing their capital. Look for someone with a history of prioritizing information security using technical controls backed by formal policy.
5. Appropriate tech stack. It doesn’t necessarily have to be the latest and greatest technology, but it must perform the basic operations that you need. The tech is what enables the firm to provide you with organized and aggregated data that you can then report to investors. How can the firm’s tech solutions help you make better business decisions? How are they able to get you the data you need when you need it?
6. Ability to customize. Regardless of what tech your administrator utilizes, they must have the ability to customize solutions to fit your needs. Otherwise the outcome will only be as good as your tech’s limitations. Administrators will either include development as part of their licensing contract or they will charge you separately for the technology.
7. Scalability. One of the biggest benefits of working with an administrator is that the burden of scalability is placed on them and not the fund manager. Having said that, some admins are more equipped for such scalability than others. Ensure that additional personnel and technology resources will be available for you as soon as you need them.
8. Institutional quality reporting. Ability to deliver required reporting from institutional investors including - standard reporting, ILPA reporting, interfacing with institutional investors and brokerage accounts through the API platform, setting up data feeds/connections with other systems.
If you are able to reasonably satisfy these basic points when evaluating an administrator, you may be on the verge of a lasting partnership. Although this is not an exhaustive list of all you should evaluate, it should offer a solid foundation of discovery and knowledge concerning the administrators under your review.