Since the 2007-2008 global financial crisis there has been a growing trend for private equity and real estate funds to delegate fund administration to specialist partners. But what are the factors that drive a successful relationship? What should you be looking for in an administrator?
The financial crisis prompted a huge increase in funds working with third parties who can take on accounting and administrative tasks.
Investors are now demanding increased transparency and favour the robust governance, due diligence capabilities and technological innovations that specialist third parties can bring to the table.
From the fund's perspective, a partner can help them to navigate the ever-changing regulatory maze that surrounds them in the aftermath of international legislation such as the AIFM Directive and MiFID II. And then there are the extra demands generated by regulation specific to those operating in certain markets, such as the Dodd-Frank Act in the US and the recently-introduced CP86 in Ireland.
It's no surprise that PwC has estimated that around 70% of European PE firms and 30-40% of those in the US now work with a third party. A partner to help them bear the heavy load as the funds industry continues to reshape itself.
Earlier this year, I attended the PERE CFO/COO Forum in New York, where senior executives from the PERE world gathered to discuss the evolving role of finance, compliance and operations. My colleague Bruno Bagnouls, TMF Group's Global Head of Private Equity and Real Estate was on a panel looking at the challenges of cross-border fund administration and how to create a strong partnership between manager and administrator.
Interestingly, one participant stated that in over 50% of cases they worked on, there was not enough clarity regarding tasks the administrator needs to take on and the issues that need to be addressed. It got me thinking, and I believe there to be five pillars that underpin the foundations of a successful manager/administrator relationship.
1. Trust
Trust is critical. You need to do your own due diligence on a potential administrator to check their track record, their capabilities, and their appetite to invest in the right people and systems to support your fund as it grows. You then need to check that they are the right cultural fit for you.
2. Transparency and communication
The panel at the CFO/COO Forum spoke about the importance of kicking things off with a 'discovery meeting'. Invest the time into helping both parties to fully understand what the expectations are on each side. Don't leave the meeting until everyone is crystal clear on the administrator's remit.
3. Collaboration
A successful partnership is rooted in true collaboration, with ideas flowing both ways. The right partner can help with all aspects of a fund's strategy, and in areas you may not necessarily expect. For example, another theme to emerge from the New York event was unconscious bias against women – a particularly pertinent topic in light of the #MeToo movement. Diversity should be at the heart of any fund's growth strategy and it goes beyond visible diversity to cover considerations such as diversity of experience and background. Many hedge fund and PE fund boards are solely comprised of industry veterans with 30+ years' experience of just that industry. A board's make-up benefits from fresh ideas and fresh perspectives and this sense of board diversity is an area that a good partner can help bring to life.
4. Resources and bench strength
It's crucial that your chosen partner has the right talent on its books. You need experts who understand not just the capital markets but also the latest regulations impacting them, legal issues that may arise and HR considerations. Strength in depth will help you to stay compliant in a rapidly-changing financial landscape.
5. Global reach and local knowledge
Last, but by no means least, you need a partner who operates internationally and has a deep understanding of the rules and regulation of each market that they are active in. Business becomes more global with each passing day and having this reach is a distinct competitive advantage. This covers the whole investment structure of a client, from the fund to the real estate owning entities through the holding/financing structures.
Talk to us
TMF Group is a recognised global player in the administration of PE and RE investment funds and companies. As an independent third party fund and company administrator, our expert team provides flexible solutions for every need – from formation and ongoing administration and accounting, to shareholder and corporate secretarial services, to staying compliant.
With a presence in 83 countries, we support the world's fund managers by providing bespoke back office solutions to enhance their global operations. We specialise in administering complex international investment structures and supporting portfolio companies who are expanding and operating abroad.
Contact us today to find out more.
Discover how we help drive efficiency for our global clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
