On-boarding, Engagement and Oversight of Third-Party Administrators
More and more private equity managers are utilizing fund administrators. Private equity managers have historically been able to operate with a lean back office. Their small staff might be charged with managing the operations of the advisory firm, along with the accounting and reporting requirements of the funds managed by the firm. However, with the increased regulatory requirements and complexities of managing a firm and fund operations in today’s environment, many private equity funds are realizing the benefits of a third-party administrator.
The benefits of utilizing a third-party administrator include:
· Access to a team of experienced staff, from accounting to legal to IR, with deep experiences across a range of funds and strategies.
· Additional controls to the fund’s cash cycle, fee calculations, and investor reporting.
· Lower costs than having to build an internal team and related infrastructure.
· State of the art technology, with extensive controls and procedures.
The third-party administrator becomes an extension of the private equity manager’s back office, and in many cases their legal and investor relations department. But once the decision is made to engage an outside service provider, the fund manager cannot take a hands-off approach to the interaction with the third-party administrator.
Selection & Onboarding Process
Once the decision is made to explore utilizing a third-party administrator (or changing to a new administrator from an under-performing one), the selection of the service provider usually involves soliciting proposals from several firms. There is a wide range of service providers, varying greatly in experience, specialization, technology, and of course, cost. The proposal and diligence process can take several months, and while the benefits will eventually accrue to the advisory firm’s small back office staff, they will be the ones charged with selecting the administrator, on top of a full plate of current accounting and reporting responsibilities.
Even after signing the contract with the service provider, your team will still face the meticulous task of on-boarding with the administrator. This is close to recreating the historical operations of the fund, and involves providing it in a format that the administrator can load into their system. Again, this is another several month process, and will continue to tax the resources of the back office of the advisory firm.
NexTier can assist your team in the selection and/or onboarding process with your new administrator. Our team has worked in an oversight capacity of third-party administrators for many years, and can make the transition a smooth one for all parties involved.
Once the service provider is live, the most successful firm-administrator relationships involve continuous interaction and oversight. The third-party administrator will often know of activity in the fund, such as capital calls, corporate actions, or distributions, before the advisor does, providing an additional level of oversight Depending on the size of the firm and funds, there can be one or multiple contacts at the advisory firm. For example, a larger shop might have one internal contact solely responsible for dealing with the fund accounting staff at the administrator, while another team member deals solely with the service provider’s investor reporting team.
If your team is small, or the interaction with the administrator doesn’t warrant a full-time position at the advisory firm, NexTier can help! Again, with our deep industry experience, we can serve as the point person between the firm and funds, and the service provider. And the level of contact between this point person and the administrator can range from very specialized and project based, such as during the audit of the funds, to a continuous involvement where NexTier is an extension of your back office. Let us play traffic cop!
Contact us today to discuss how we can assist your back office team, and help select and onboard a third party administrator, or enhance the relationship with the service provider if it is already established.
NexTier Solutions 919-646-4005 firstname.lastname@example.org