It’s no surprise that funds have numerous operational needs—accounting, treasury, cash management, compliance, reporting, performance tracking, and investor relations, to name a few. Some fund managers prefer to manage all that work in-house, but institutional GPs have recognized the value of outsourcing fund administration. Hedge funds were some of the earliest adopters of third-party administrators but PE, VC, and CRE funds are now catching up.
Here are three reasons GPs who are planning for growth choose to work with third-party administrators.
Independent fund accounting experts help you deliver better financials to your investors, reduce your risk by gaining extra layers of review, and save your team time.
Ultimately, the fund administrator works for the LPs.
Over my career, the list of investment managers defrauding their investors has tragically grown. The Madoff scandal in particular brought an enormous amount of public attention and highlighted the risks in alternative investments. With the subsequent new regulations and transparency requirements from regulators and investors, fund administrators were able to enhance their role in the market as independent controllers of a fund’s books and records.
Even though many fund managers have been around for decades, LPs, particularly institutional investors whose risk management policies and controls have only become more stringent, now often require a GP to hire a third-party fund administrator as a condition of their allocation.
A successful fund administrator allows for efficient communication of information and capital to and from investors, helping reduce the perceived risk of the investment from the investor's perspective.
Accurate, timely, and transparent reporting
Automate away the repetitive, manual processes while gaining the reassurance of a second pair of eyes on your capital calls and distributions.
Reporting demands in the alternative investment space continue to change. Investors are looking for a single point of truth and a consistent, standardized way to compare the performance of their investments and the underlying assets in the portfolios in which they are invested. Accurate, timely, and transparent reporting is critical for fund managers and investors to make informed decisions.
Technology like Juniper Square's digital partnership platform has played a major role in streamlining the fund reporting processes and improving accuracy. Automated systems can quickly gather and process large amounts of data, reducing the risk of errors caused by manual data entry. Advanced analytics tools can also help identify and flag any potential errors or discrepancies. Seth Porter, Senior Vice President of Investor Relations at CREC Real Estate, LLC, has run multiple capital calls with Juniper Square’s fund administration team—each perfectly executed. No longer reinventing the wheel every time, CREC can now easily produce capital call notices and financial statements that are more timely and accurate.
In addition to better technology, a modern fund administrator also brings that essential human element to their clients. The right team can assist and bridge gaps, ensuring fund managers have the appropriate solutions to focus on what they do best—investing and managing assets.
Streamline tax and audit season by delivering structured records of the investor ledger with a third-party administrator.
A good fund administrator can help GPs streamline and institutionalize their internal operations, creating repeatable and scaleable processes. David Perel, Chief Investment Officer for NewcrestImage, claims he can “set his watch” by Juniper Square’s fund administration team and credits the group with prompting him about the tasks that need to happen and when they need to get done.
This operationalization becomes especially valuable during tax and audit season. A third-party administrator often delivers:
Complete and accurate financial records, including all transactions and balances.
Investment information, including details about the type, value, and performance of the assets.
Information about the fund's distributions, income, and other capital events.
The fund's organizational documents, including the partnership agreement and tax election documents.
Notice of all legal and regulatory requirements that apply to the fund, including tax laws, securities regulations, and reporting requirements.
Any explanations or clarifications about specific transactions, events, or policies.
The easier it is to consolidate and disseminate information to the right partners (including LPs) at the right time, the more streamlined tax and audit season will be.
As a last thought, doing administration in-house means a fund manager needs to hire, train, and maintain a team, which isn’t always easy. Engaging a third-party administrator makes that a problem for your administrator and can also introduce some stability in the financial oversight of the fund. By outsourcing back-office functions, which can be automated by a tech-forward fund administrator like Juniper Square, you can free up the existing talent at your organization to focus on other, higher-value work that drives real business results for your investors and company.