As alternative asset managers know, a firm's success depends on its ability to source investments and build lasting investor relationships. The satisfaction of finding unique opportunities and generating value for investors is why general partners start a firm—and how firms differentiate themselves. But the industry's growing complexity, from evolving regulations and reporting requirements to complicated fund structures, makes fund administration more challenging and expensive.
The emergence of sophisticated technology has enabled asset managers and service providers to meet demands for additional data and transparency. However, onboarding and utilizing these platforms requires significant financial and human capital and technical expertise. As a result, investment firms find themselves spread thin across tasks that are deeply important to fund operations but not directly related to deal sourcing or creating value for investors. These tasks include fund accounting, tax reporting, regulatory reporting, information technology (IT) management, data analytics and investor services.
Outsourcing fund administration allows firms to refocus on their core business and the features that make their funds unique. Indeed, approximately 50% of middle market investment firms currently use a third-party fund administration solution (up from 25% less than a decade ago). However, to truly maximize the relationship with service providers, firms need to understand the value the third-party administrators provide.