By Hank Boggio, Senior Managing Director & Chief Revenue Officer of PEF Services LLC
In the past decade, the opportunities for private debt have grown significantly. When banks changed their lending criteria after the 2008 financial crisis, it created a lending vacuum that the alternative asset market has been able to neatly fill.
For General Partners, the situation presents attractive opportunities, but it’s not without its challenges. Debt funds add a layer of complexity to an asset class that is already burdened with growing administrative requirements.
To ensure success, managers need to examine their back-office expertise and processes to make sure that they’re capable of supporting this complex and administration-heavy strategy. For these reasons, many firms are opting to outsource fund administration to be certain that they have the best experience on hand to adequately administer their funds.
With this in mind, debt fund managers should prioritize these best practices:
1. High-touch or boutique-style service. Some fund administrators apply a one-size-fits-all approach, and this may not align with the needs of your firm. Debt managers are more likely to need a service-level agreement (SLA) that can be tailored to the firm’s strengths and capabilities and one that wraps around existing back-office preferences. When a generic approach is applied to the administration of funds, it can increase the workload, taking valuable time away from strategy and value creation.
2. Access to senior-level expertise. Every GP will benefit by selecting a fund administrator that prioritizes extensive, industry-specific expertise, but debt managers will see even greater benefit from having a highly experienced team in place due to fund complexities. In these cases, having direct access to a team with extensive experience managing private capital fund structures can offer peace of mind.
3. Industry reputation. The knowledge that funds will be administered by a third party gives investors confidence that the funds will not only deliver excellent returns but will be well run, meet regulatory requirements and employ industry best practices. However, not every fund administrator has a trusted name and recognizable presence in the investment community. Choosing a fund administrator with a strong reputation will signal that the firm is serious about compliance, transparency, and operational efficiency.
4. Investor communications. Both new and mature firms need to select fund administrators that integrate industry-leading technology into their service delivery, because those solutions enhance service efficiency and transparency. For debt fund managers, investor-facing technology is an especially important consideration. Choosing a fund administrator that uses an investor portal for investor communications offers tangible proof that your firm understands and is ready to support investor needs and expectations.
5. Service partnerships. Should you need access to a trusted network of service providers, an experienced fund administrator can add value by providing introductions to auditors, placement agents, compliance firms, and tax reporting professionals whose services they can vouch for and with whom they have an existing working relationship.
The choice of fund administrator is important. Choose wisely, and it enhances your reputation, reduces risks, and enables you to stay focused on sourcing and managing investments. Choose poorly, and it can impact investor relations, disrupt operations, jeopardize compliance, and hamper your firm’s ability to scale.
When choosing a fund administrator for your debt fund, look for a service partner that offers the certifications, processes, and core capabilities that will support your firm now and into the future. Remember, even if your current fund has a simpler structure, choosing a fund administrator with experience in more complex debt ensures that you have the ability to pursue any opportunity that presents itself in the future without having to switch service providers.
Read more: Debt Fund Administration