Introduction
For the majority of Private Equity and Real Estate firms, the fund administration process is largely in-house. There is an increasing trend of outsourcing fund administration processes by General Partners like Hedge Funds, Private Equity, Real Estate, and Venture Capital funds. The outsourcing of the fund administration process has several advantages. At the same time, however, keeping the process of fund administration in-house has several disadvantages. Some of these are:
High Costs
Hiring specialist professionals with expertise in Fund Administration is a costly affair. Managing a team on-site is even costlier. Outsourcing some of the mundane functions can save up to 30-50% of costs related to the fund administration process
Lack of expertise
There are multiple complications involved in structuring a fund and then reporting the development afterward like new investments made, valuation of the portfolio assets, and exiting the assets. It’s difficult to get professionals who know it all and even if they are there, its overly expensive
Primitive Investor Relations Process
Mostly when the fund administration process is kept in-house it lacks innovation. There is no automated tool to report the fund performance to LPs. Systems of reporting are archaic with excel sheets and newsletters still being used excessively
Further financing rounds
LPs increasingly are preferring GPs who rely on third parties for fund administration process as that brings in an unbiased view of operations to them
Dilution of focus from the core objectives
A PE firms’ focus should ideally be looking into the operations of portfolio companies, streamlining them and finding out buyers for them and certainly not getting mired with day to day reimbursements, accounting, rental follow-ups, and valuations
Scalability
As the in-house team is fixed, there are scalability issues. There are lots of documents that are to be studied during an investment and exit whereas the workload tapers in normal day to day operations. It can’t be scaled up or down as per the project or fund requirements
Lack of automation opportunities
A specialist outsourcing player brings in lots of automation opportunities as that firm is working with multiple other Private Equity or Real Estate firms on similar issues. Automation is not possible in-house as there is a lack of automation know-how in-house.
Regulatory compliances change much often
Depending on the countries where the fund is listed and the countries where the investments are made, there are a plethora of regulatory compliances that need to be followed. It is a cumbersome and time-consuming task and is prone to faults. This impacts the speed at which the fund should move
Magistral’s Service Offerings Related to Fund Administration and Accounting
We provide the following services that are related to Fund Administration and Accounting:
Fund Launch Assistance
We assist in all operational aspects of the new fund launch. Our offerings are:
-Review of the offering document prepared by legal counsel
-Review of Operating Procedures
Accounting and Administrative Services
These services keep the fund operations running smoothly. Our service offerings are:
-Process Investor Subscription and Redemptions, corporate actions, etc.
-Record Trades, Non-Investment Transactions, Receipt/Payment of Intrest or dividends, all trading and bank account activities, fees and rebates, etc.
-Maintain primary books and records
-Review trade exceptions
-Reconcile cash, positions, market values, etc
-Report client portfolio information
-Calculate management and performance fees from the source documents
-Allocate profit and losses, waterfall allocations, etc
-Prepare investor statements and distribution of the same
-Prepare audit package and draft financial statements including all schedules and footnote as per GAAP
-Liaise with auditors and counsels
Additional Private Equity Accounting and Administrative Services
Here are the services specific to a Private Equity Fund:
-Preparation and distribution of Capital Call letters
-Reconciliation of calls and distributions
-Waterfall allocations
-Fee Calculations
-Deal tracking and analysis
-Performance calculations
Tax Preparations
Here are the services related to tax preparations
-Maintaining tax capital accounts for all investors
-Preparing tax allocations, tax returns, and K-1s
-Communicate with external tax advisors
We also have an in-house online tool to track fund performance and all other details on a real-time basis. The access to the tool and its layout could be customized as per the client’s requirements
If you agree with the nature of the problems stated above and need to outsource the suggested solution, please read on. We at Magistral Consulting offer a full suite of solutions regarding the fund administration outsourcing process. Here are some of the reasons, you should be working with us:
Cost competitive
We are a fund administration outsourcing company with offices in a low-cost country like India. This arrangement ends up building all the advantages of outsourcing fund administration along with the unbeatable price advantages due to the location. An indicative savings of up to 70% is very much possible by outsourcing your complete fund administration process
Proprietary Tools
We have multiple online investor relations and client relations tools that update the data in real-time. This means no follow-up required on anything. Both GPs and LPs get the real-time fund performance snapshot
Middle Office Support
Our middle office support includes EoD reporting, Intraday reporting and reconciliations, performance contribution and attribution reporting, trade bookings and settlements, Daily cash positions, Daily NAV and reconciliations, vouchers and reimbursements, performance calculation and reporting, and monthly factsheets. Apart from this, we offer documentation support throughout the fund set up process in tax havens and other countries
Access to the ecosystem of professionals on a need basis
We have a roaster of professionals who may bring in expert opinions if the situation so demands like the liquidation of assets, legal hassles, translators, and lawyers specializing in a specific country’s commercial laws
Global Presence
With delivery centers based out of India for cost advantages and sales offices or resellers in San Francisco, New York, London, Oslo, and Singapore, we understand the global nuances of the fund administration process
About Magistral
Magistral Consulting (www.magistralconsulting.com) has helped multiple Private Equity, Venture Capital, Hedge Funds, and Real Estate Funds in outsourcing Fund Administration Process
To explore the opportunity of working with us, talk to our client references, or having a look at our work samples related to the fund administration process, please write to Prabhash.choudhary@magistralconsulting.com
About the Author
The author is the CEO of Magistral Consulting which is a premier research and operations outsourcing firm for Private Equity, Real Estate, Investment Banks, and Family Offices across the globe. He could be reached at Prabhash.choudhary@magistralconsulting.com for any queries.