How do you choose a fund administrator? This decision has important implications for the smooth functioning of your investment management business. We look at some of the key criteria fund managers should consider.
Fund administrators come in all sizes and there can be a temptation to opt for just the larger brand names, but this may not always be in the best interest of the fund and its investors, when cost and service levels are taken into consideration. Whilst brand recognition with investors can help from a marketing viewpoint, size does not always equal good and is not a substitute for due diligence. Indeed, many of the largest frauds in recent years have been at funds supported by the largest fund administrators.
Getting the right fit for your fund operation
Everyone wants to be an important client, so selecting a fund administrator that is the right size for your fund is more important than just a big name. It is critical that you can grow with your administrator and not outgrow them if you select a smaller firm.
Organisational, cultural and people fit are also key selection criteria to ensure a happy relationship. The physical location or time zone of the administrator, flexibility and responsiveness to issues will also influence the success of the relationship. These characteristics are often ascertained during the selection process.
It should go without saying that an administrator needs the right in-house expertise to deal with your fund. In particular product, strategy, and instrument level knowledge, as well as operational and technical accounting expertise should be examined.
Don’t ignore ancillary fund administration capabilities
Similar to the actual fund administrator, technology does not need to be just about size. Most importantly it should be able to handle the full lifecycle of every instrument you plan to trade, plus have the flexibility to perform customised or complex calculations, particularly for performance fees. Additional scrutiny should be applied to disaster recovery, cyber security, and regulatory compliance capabilities.
In an increasingly competitive industry, accompanied by downward pressure on fees as investors and regulators seek greater value for money, it remains the case that you get what you pay for. Very low fees may mean you will be supported by the B team rather than the A team, or could lead to fee hikes, or worse still, your administrator exiting the relationship if your assets do not grow. Beware too any hidden extras or lengthy contract terms that appear in the legal agreement that were not in the proposal. At the other extreme, beware of paying for a Rolls Royce when you just need a Toyota.
Hawksmoor Partners provides advice and guidance to funds on a range of structuring, marketing and operational issues. For further information on our capabilities, please contact Stuart Fieldhouse – firstname.lastname@example.org