Working with independent fund administrators by Brian Shapiro

Brian Shapiro, NES Financial

To many in the private equity and real estate fund sector, working with an independent fund administrator is rapidly proving to be an attractive alternative to going at it alone. Investor needs have driven increased demand for outsourced fund administration over the past few years.

Many general partners are evaluating whether outsourcing their administration and operations makes sense. Some of the most common questions being asked to help identify this need are:

• Does the fund require further expertise and bench strength to accommodate current activity plus future plans?

• Does in-house administration take attention away from the primary focus of investing funds wisely?

•Is the regulatory and tax environment changing so quickly that it has become extremely important to have processing partners that actively follow the market?

If the answer to any of the above is “yes,” then typically it is time for a private equity or real estate fund to consider outsourcing fund administration. The onboarding process is the first and most important step.

When looking for a partner to handle your private equity or real estate administration, it is important to understand their processes and experience, beginning with their onboarding philosophy. The key to achieving onboarding success is having a dedicated onboarding team. Within the administration service provider, this team’s sole focus is setting up every client so that they can service their needs efficiently for the life of the relationship.

Juggling Formats

Whenever a new fund is onboarded, the data itself can present many challenges. Oftentimes funds will store data in many different formats, such as spreadsheets, databases, and/or commercial general ledger (G/L) systems. Some funds even keep records in hardcopy format. As a result, bringing both financial and non-financial data from disparate sources into a new system can be a Herculean task.

The obvious solution is to look for ways to remove the manual effort in order to develop best practices and create efficiencies. Implementing a technical solution from an established provider allows funds to enjoy increased accuracy, lower costs, and shortened time-to-market. The most experienced fund administration providers can now successfully transfer data from the majority of their clients’ funds to their platforms in just a few weeks.

Import, Import, Import

From a technical perspective, a successful onboarding process begins with fundamental and historical templates. Funds use these as a bridge to transport their data into their administrator’s system. An effective template allows a client to organize their data into categories such as fund, contact, legal entity, vehicle, and investor. It also allows the administrator’s onboarding team to configure the set of rules that will be used to validate the data. Once the rules have been configured and the organization of data has been completed, the onboarding team will use the data in the template to begin initializing the fund on its systems. A mature onboarding process persistently tests and reconciles the data and the applied rules, presenting the client with detailed exception reports throughout the process.

These exception reports will be grouped in the same groupings used by the onboarding team when organizing their data. Because this is an iterative process, the error reports will be archived, making any future queries against error logs quite easy.

Once the onboarding team has validated that the organized client data meets the rules and requirements, the next step in the process is to onboard the data into a G/L system. To complete this step, the onboarding team simply identifies the validated template(s), and the system then imports the data into the designated G/L system. Depending on how the onboarding data is organized, there may be more than one template as well as more than one import. This complexity is not a challenge however, since the template-based validation process has proven to be a successful approach to onboard clients time and time again.

Administrators that employ a dedicated engagement management and onboarding team are able to be flexible in accommodating varying fund needs. Some funds use all products, only certain products, or create their own services, and the flexible administrator is able to identify ways to efficiently meet all of those situationally unique needs.

Trust Your Partner

At NES Financial, we know what it is like to have a complicated structure, investment portfolio, and specific investor needs, and we are able to strategize during the onboarding phase to make sure those needs are addressed. Through automation, efficiency, and a dedicated engagement management team, NES Financial is able to provide bench strength and the ability to keep up with the changing environment, enabling you to focus on investing. At NES Financial, our focus has been on finding ways to remove some of the complexity, lower the costs, and shorten time to market, allowing our private equity and real estate clients to focus less on their onboarding and more on what they’re good at: making smart investment choices.

Brian Shapiro is a managing director and global head of fund services at NES Financial, Rockland, Mass.