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Posted May 6, 2024

Administrator acquisitions: Trust but verify

Administrator acquisitions Blog 840x560

Acquisitions in the fund administration industry have been ramping up—an estimated 55 acquisitions in just three years—with just three firms accounting for half of that activity. While this kind of consolidation can provide GPs with an administrator with a broader geographic footprint or greater functional expertise, the integration process that comes after an acquisition or merger can be tremendously disruptive for an administrator’s clients. Accounting team members may leave or be wrestling with new policies and procedures. A loss of institutional knowledge causes misunderstandings that can lead to disastrous mistakes—one fund administrator misinterpreted a change in accounting procedures, resulting in a cumulative 9.08% overstatement in a client fund’s net asset value over 18 months.

In short, even growth can cause problems.

So what’s a GP to do? In this three-part series, we’ll explore what you can do to minimize the chance of disruption in the wake of an acquisition, how to respond to the first hints of any problems, and, if necessary, how to separate from a fund administrator in the least disruptive way for your operations.

Trust, but verify

Hopefully, you don’t often find yourself worrying about your fund administrator. That’s the point of having one: it takes care of things your team would otherwise have to worry about. But if your fund administrator has been acquired or has made an acquisition, it’s worth taking a few extra steps to ensure your data, reports, and calculations are correct. While some of these efforts may increase costs or take extra time in the short term, it’s important to consider the costs—both financially and reputationally—resulting from a mistake.

Audit security: Who can see what?

It’s a good idea to check your security protocols and access controls regularly, but it’s especially important whenever there is turnover or attrition at your administrator to guarantee the right people have the right level of access, including everyone at your firm and other service providers. Your administrator should be the quarterback, not a gatekeeper, regarding your data, streamlining the onboarding process for new team members and minimizing potential service disruptions or data mismanagement.

Who is your new fund administrator?

If your fund administrator has recently been acquired, you may need to do a little due diligence yourself. Who has acquired them? Some firms, such as Apex and Pinnacle, have a defined growth strategy by acquisition—between 2020 and 2023, Apex accounted for 30% of acquisitions. Do they specialize in your type of fund structure? Are you one of their bigger or smaller clients? Is their staff large enough to support the expanding business, or are they hiring rapidly? Will there be any changes in technology or support models that you need to get comfortable with? Finding the answers to these questions and more helps you be better prepared.

Prepare to onboard a new team

Acquisitions inevitably lead to personnel shakeups. Get to know the lead person on your accounting team, especially if they are new to you. Just as each relationship is different, the communication model that works between each firm and the fund administrator will be unique. Some work well with weekly meetings or calls; for others, it’s too much. For some relationships, the right model varies depending on the time of year and the work the fund is doing at that moment.

One never starts a relationship thinking it will end. But with the rise of mergers and acquisitions, it’s not unreasonable to assume your fund administrator might change, which won’t have been your choice. If that happens, our next post offers some tips for navigating any changes in service that may arise.