Private Equity Fund Administration includes functions related to the fund’s operations including functions such as regulatory and compliance, fund accounting, audit oversight, investor reporting, and tax requirements. As technology, automation, and transparent processes are centered around management and workflow, automating standard processes allows the fund administrator to minimize workflow friction and improve job throughput. Fund administrators are in effect empowered to focus their attention on asset and portfolio managers as well as on more complex scenarios within the firm. They can essentially transition to the role of a business partner and add value at the service level.

Increasing regulatory pressures and technology demands are putting more pressure on private equity firms to outsource their administration services.

Traditionally, private equity funds have been self-administered. However, this has begun to change in recent years. Based on several of the trends we have been monitoring for our 20 years in RyanEyes the number of private equity funds leveraging third-party administration services has likely doubled over the past 3-4 years. The reason for the trend to these outsourced services includes but is certainly not limited to:

• Complex Investment Structures are Increasingly Causing Errors
  As investment structures become more complex, private equity firms have realized that “managing by Excel” has become cumbersome, inaccurate, and outdated. Outsourcing to expert, fund administrators minimizes errors and ensures efficient, accurate reporting for investors, general partners, and regulators.
• Regulatory Pressure is Time Consuming and Adding Risk
  AIFMD and FATCA are just some examples of highly-complex regulations that private equity firms must now be in compliance with. Private equity firms need to find experts in regulatory compliance functions to bring in necessary skills to ensure that funds and their general partners are compliant.
• Funds Must be Scalable to be Efficient
  The administration of private equity funds requires focus and attention to detail. However, private equity administration also requires significant investment in workflows, firm resources, and technology. By outsourcing fund administration, fund sponsors can focus on their core competency – investing and generating returns for their investors. The result is a more scalable, robust process which enables sponsors to grow their businesses in an efficient manner.
• Investor Demands for Greater Independence and Transparency
  Investors are demanding operational excellence from their funds and are increasingly demanding third party administration. The trend to outsource is being driven by market pressure on firms to deliver accurate record keeping with greater transparency. Using a third-party administrator adds credibility to private equity funds.

Key Performance Indicators for Fund Administrators

Alternative asset managers including hedge funds, private equity funds, and investment funds have relied on fund administrators to handle critical activities within their diverse organizations. Many of the firms that we partner with use multiple fund administrators and depend on them to manage NAV-related functions, audit adjustments, and trading issues. As we suggested in the previous section, many asset management firms have goals to increase the productivity of fund administrators and according to PWC’s survey, they are using KPI’s like those listed below to measure progress:

• Timeliness of Reports
• Number of NAV Errors
• Percent of NAV Produced on Time
• # of Audit Adjustments
• Aged Open Items
• Prior Period Corrections
• Trade Errors
• Trade Breaks

Meeting the aggressive KPI’s has required fund administrators to adopt technology and software to transition from manual, paper-oriented processes to automated, transparent, and shared processes. Fund administrators are minimizing the touchpoints and maximizing the use of technology across the entire business design.
For example, the funds are also leveraging fund administrators to handle many of the middle office functions including:

• Bank/Broker Reconciliations
• Price Verification
• Corporate Actions Processing
• Portfolio Accounting
• P&L Reporting
• Trade Processing
• Cash Management/Treasury
• Performance Measurement & Attribution
• Trade Compliance
• Risk Attribution

Fund Administrators Increase Productivity by Automating NAV Report Activities

The calculation of the fund’s net asset value or NAV, including the calculation of the fund’s income and expense accruals and the pricing of securities at current market value, is an example of core fund administrator responsibility. The reason the responsibility is so important is that the NAV is the price at which investors buy and sell shares in the fund.

The responsibility involves trade capture; security valuation, reconciliations; expense calculation; and ultimately the NAV calculation and external and internal reporting. This critical activity has traditionally been fraught with manual processes, time-consuming data collection, and unfortunately has been fraught with errors.

The previous solution to calculating NAV in many of the firms that we have implemented RyanEyes’ software was spreadsheets. We know that if you are in the industry this comes as no surprise, however, to suggest updating an excel spreadsheet to calculate NAV as well as track all of the data needed to make the calculation is labor-intensive and been described by many fund administrators as “overwhelming.” The reason is fund administrators must not only calculate NAV but also collect the data from a variety of colleagues across the firm and likely across the globe.

Conclusion

Our consultants identified that the NAV calculation and month-end close process is one of the most time-consuming and least productive uses of a fund administrator’s time and energy. We just wanted to be frank here. We imagined improving productivity through a collaborative, automated process that collected, tracked, proactively notified colleagues including CFO’s and Chief Controllers who were part of the workflow, and ultimately accurately calculated the firm’s NAV and handled the haphazard month-end closing process.

As fund administrators become more skilled, specialized, and take on additional responsibilities across the middle and back office, automation, transparency, and collaboration tools are critical to increasing productivity. Software solutions that provide a single-pane-of-glass capability along with the ability to reduce the time required to generate NAV calculations and close the month in a streamlined manner will provide a competitive advantage for the firm.

To Learn More About How to Increase Fund Administrator Productivity – Contact Us, We Are Happy to Help – 1 (347) 759 0105.

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