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Posted Jul 10, 2023

The benefits of working with a third-party fund administrator

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This article was originally published in the IREI Americas July|August 2023 issue. Download a PDF copy of that article here.

Chase McWhorter, Institutional Real Estate, Inc.’s managing director, Americas, recently spoke with Adam Walker, industry principal, fund solutions, at Juniper Square, about the nuances and efficiencies of partnering with a third-party fund administrator.

The following is an excerpt of that conversation.

What are some of the main benefits of working with a third-party fund administrator?

Expertise, first and foremost. First-time fund managers, even those with experience at more established firms, often assume fund administration will be easier than it is. Perhaps they have an internal accountant who they think can handle the fund accounting work, but oftentimes they don’t have the specialized technical skills and experience to manage what a fund administrator does. Working with a third-party administrator from the get-go takes care of that and ensures the work is accurate and the details are handled correctly and efficiently, no matter how complex they become. A fund administrator can provide expert advice, insights, and examples of what other successful GPs in your space are doing (or what less successful GPs have done and you need to be wary of) so your firm can outperform.

That segues into scalability. Maybe you’re small, and you can do it in-house today, but in the future, when you’re launching funds two, three, and four, managing that work gets more complex. If you aren’t working with an external administrator who can keep up with and support your pace of growth, you’ll have to scale up internally. When you outsource to a third party, you are tapping into a team of individual accountants with years of experience and getting access to tenured fund admin professionals who can oversee everything. By outsourcing, you’re getting the benefit of a full partnership to help you scale and do things much more efficiently.

Another piece is being able to deliver transparency and build investor confidence. Many institutional investors expect you to have a third-party fund administrator to manage the books and records. Some even require it as a condition of their allocation. An outside fund administrator creates that extra layer of oversight and review so investors can trust the information is accurate.

What should an investment manager consider when selecting an administrator to work with?

First off, do they understand your business? There is a belief that all types of private equity are the same. And while the accounting is relatively the same, the information from the underlying asset classes do differ. The operating agreements from the underlying portfolio companies can vary substantially, causing the flow of activity to come at different volumes, at different velocities, and in different formats. Ideally, your external team will have experience with your fund structure and can walk you through any potential accounting implications unique to you.

Technology is also essential. But technology must genuinely serve a purpose, increasing speed, flexibility, and transparency, rather than just being new, fast, or shiny. A tech-forward fund administrator can maintain all your fund information in a centralized system, enabling internal teams, other third-party providers, and LPs to access any information needed. A modern administrator can power everything from fund accounting and investor services to your investor portal and CRM, combing your investor data, investment track record, and underlying portal data to uncover new insights and drive operational efficiency. Purpose-built solutions streamline fundraising, investment operations, and investor reporting while enhanced controls, automated workflows, and approval rights help minimize errors.

The people also matter. An administrator needs to work well with your other service providers—lawyers, CPAs, banks, and auditors. The fund administrator is akin to the hub of a wheel, connecting the work of the rest of your service provider stack. Their accounting team must be able to establish and maintain clear communication paths with all your other service providers, “quarterbacking” the team smoothly to ensure everyone has what they need.

When should an investment manager bring in an administrator?

The administrator role can start from day one of the fund’s life. Some people will ask me, when do you suggest we sign up with Juniper Square? I always say the earlier, the better because a good administrator needs to be a partner, and they can help you early in the process. When you’re creating the subscription document or the operating agreement, for instance, your admin can provide meaningful feedback before you finalize them. The sooner the administrator is involved, the easier it is to avoid pitfalls and keep your firm from getting out over their skis.

How does an administrator work with the rest of a manager’s service team — the CPAs, attorneys, and auditors?

We work hand-in-hand with the auditors and tax preparers. GPs typically like having a fund administrator because the auditor is more inclined to trust an independent third party, and the audit likely will go smoother through the draft financials and the process with an outside team. Auditors can be very picky and have different opinions about how the financials should look, and if you don’t have an administrator managing that process for you, you’re going to be the one making those last-minute updates and producing supporting documents.

One client told me they appreciate how much easier is to package and present information to auditors because they work with Juniper Square. Instead of having a bunch of Excel files — inevitably, some will be outdated— it’s an instantaneous download of the most current numbers in a very easy-to-understand package that can then be quickly passed to the auditor.

Outside of producing financial documents, how can the right fund administrator improve the overall investor experience?

One of the biggest ways fund administrators can contribute to the investor experience is by knowing the industry standard thoroughly. Some managers say, “I’ve been doing this for 10, 20, 30 years. This is how I’ve done it; this is why my investors like it.” But it may be out of date with the industry standard. A trusted partner who is seeing a more broad and more holistic view will be very aware of industry changes — whether it’s technology, formatting, or an environment. We have full teams built to keep abreast of industry standards, what people are expecting, and how to maneuver to make sure our clients are ahead of the curve. Modern Administration from Juniper Square strengthens your partnerships by unifying finance, investor relations, and other key stakeholders around a single platform designed to improve the investor experience and cultivate deeper relationships.

How can a manager tell when they’ve outgrown their current fund administrator and need to switch to a new provider?

The first indication may be size and scalability. If you sign up as a $100 million fund group, can the administrator lead you to the next fund of $200 million or $300 million? If you have 50 investors in this fund and the next one will have 1,000, can the administrator handle that? Have they done it before?

The other piece is the international complexity. Every fund administrator is different in this area. What are their capabilities in foreign jurisdictions? Do they utilize other third parties and partner with them? Do they do the work in-house? That’s not saying one or the other is right or wrong — but how do they structure this? Is working with them overseas going to make your life easier, or will it make it harder? You have to understand where you’re at now and where you want to be in five years and be aware that every fund administrator isn’t able to do everything you need. Have they had success with a group like yours? If not, are you willing to be the guinea pig?

What makes Juniper Square different from other fund administrators?

The traditional administration model is generally scoped to include financial reporting, accounting, and other administrative workflows. While this checks all the “must have” boxes, it’s still limited and not adaptive enough to respond to changes in private markets. Fundamentally, GPs need their administration team to meet their needs today and enable them to survive and thrive years into the future. Juniper Square has the tools and processes to manage your fund, no matter how much or fast your firm grows.

First, we are a tech-enabled administrator. Juniper Square's digital partnership platform can streamline the fund reporting processes and improve accuracy by gathering and processing large amounts of data, reducing the risk of errors caused by manual data entry. In contrast to the many disjointed systems and processes in place today, Juniper Square provides GPs with a universal platform to meet evolving expectations for visibility and access to information, both internally and externally. Whether you’re a $10 million shop or a $6 billion shop, we want to ensure your investors have a phenomenal experience.

It’s also important for us to hire the best and the brightest to use that best-in-class technology. When you pair those two things together, you have a sure foundation you can build from.