Why General Partners Are Rethinking Their Needs and Replacing Their Fund Administrators

By Hank Boggio, Chief Revenue Officer of PEF Services LLC

A growing number of General Partners are turning to outsourced fund administration to manage the burden on their back office. But the number of General Partners who are dissatisfied with their current fund administrator relationship and are switching providers is also on the rise. What are the issues, and how can they be avoided the second time around?

Looking Beneath The Outsourcing Trend

The trend towards outsourcing fund administration is on the rise. According to a 2015 eVestment survey of alternative fund administrators, global assets under administration (AUA) grew at a double-digit rate in 2014, increasing from $5.873 trillion to $6.862 trillion.1 And that growth was predicted to accelerate in the coming years.

A 2014 survey of private equity and real estate managers who currently insource found that one in four were planning to outsource at least one back-office function in the next 12 to 24 months.2 And while 30% of private equity fund administration was outsourced as of 2016, that figure is predicted to rise to 50% by 2018.3

Clearly, General Partners recognize that outsourcing this back-office function has the potential to help the firm meet regulatory challenges, deliver better service to investors, and gain more time to focus on high-value activities. However, it’s equally clear that not all General Partners are seeing the full complement of benefits from this outsourcing arrangement. In fact, many fund managers are dissatisfied enough with their fund administrator that they are choosing to end the relationship and seek out a new service partner.

 

36% of fund managers switched

fund administrators in the previous 12 months.

 

According to a Preqin study conducted in 2016, 36% of fund managers had switched fund administrators in the previous 12 months.4 While a certain amount of turnover is inevitable, the rate of change was higher for fund administrators than for any other private capital service provider examined, including placement agents, fund auditors, and law firms.

What is the story behind the numbers? Why are so many of these relationships breaking down as fund managers seek out new arrangements?  Read the white paper entitled ‘Making The Switch’ to learn more about some of the key areas of dissatisfaction and to consider the ways in which General Partners can make a more informed, successful choice the second time around. The paper includes a helpful checklist for General Partners and their fund administrators to smooth the transition.

1 eVestment Alternative Fund Administrator Survey, 2015.

2 PwC, Alternative Administration Survey, 2014.

3 PwC, Hedge Fund Administration: The Quest for Profitable Growth, 2014.

4 Preqin Special Report: Private Capital Service Providers, 2017.