The proper operation of an investment fund requires a host of back-end administrative activities. Some fund managers carry out those tasks using an in-house team though, increasingly, fund managers are outsourcing to fund administrators, a third-party service provider. Connie Tirondola, head of North America real assets fund services at Citco Fund Services (USA) Inc., is one of the many people who work in the fund administration space.

What exactly is fund administration?

Fund administration is an outsourcing of support functions needed to run an investment management platform. The services include accounting, administration, investor servicing/reporting, financial and statutory reporting, treasury and depositary services, and corporate secretarial activities. The fund administrator often specializes in the specific investment type — real estate, infrastructure, private equity, hedge funds, etc. The fund administrator can provide the middle-office and back-office support enabling the investment manager to focus on value-add services.

What are the advantages of outsourcing?

There are multiple advantages to outsourcing this kind of work. First, it allows the investment manager to focus on their core services of creating fund structures, attracting and servicing investors, and investing in and managing investments on behalf of those investors, to create income and value for them. Second is the ability to create scalability for managers so, as their funds grow and some ultimately wind down, they do not have to worry about the volatility of support staff. Third, it gives the manager the ability to leverage the technology investment the fund administrator has made. Many investment managers will look to invest in analytical systems and data warehouses rather than accounting, recordkeeping and reporting systems. The fund administrator helps collect, create and synthesize data for use by the manager.

My understanding is the outsourcing of real estate fund administration is soaring. Why is this the case?

Historically, hedge funds and many private equity funds have been supported in an outsource arrangement with a fund administrator. Real estate investment managers traditionally kept fund accounting in house; however, outsourcing within the real estate industry has been on the rise over the past several years because of increased complexity in fund structures, cost of technology, availability of experienced personnel, and, oftentimes, investor demand. The introduction of tax-driven feeder funds, Luxembourg entities, REIT structures and other complicated fund structures, as well as detailed investor reporting needs such as ILPA, has driven the need for subject matter experts found at fund administration firms.

What does it offer client investors?

There has been an increase in investors, especially sophisticated investors, requiring a fund administrator to support the funds in which they invest. Their view is that this arrangement adds an additional layer of review and independence, since the fund administrator has robust controls and generally has a SOC 1 operational audit done. Another benefit is that it can evolve into a more efficient and economical model for the fund in which they have invested.

What are the key things an investment manager should be considering when selecting a fund administrator?

The manager should consider the breadth and depth of services they need versus the offering. For example, an administrator with a global footprint and comprehensive service offering can offer a wide range of solutions. They should also consider the type of funds with which the administrator has experience, both structurally (open end, closed end, separately managed accounts) and investment type (real estate, infrastructure, debt, private equity). They should also consider the relationship model; if they require multiple service offerings, they should have a single point of contact or relationship manager. A successful outsource arrangement will act as an extension of the manager and find opportunities to add value while supporting business as usual. The right fund administration firm should view their client relationships as business partnerships, where they provide comprehensive business solutions to clients and look to add value to clients’ business operations.