Fund Administration – a guide to outsourcing

Fund managers outsource fund administration for a number of reasons. These include but are not limited to:

  • Reducing the costs and resources of maintaining in-house systems
  • Replacing manual and spreadsheet-based processes
  • Benefiting from the expertise of an experienced administration provider
  • Ensuring a business continuity contingency
  • Elimination of key person(s) dependency
  • Provision of technical expertise in jurisdictional and product types, not available in-house
  • Focusing resources on core strengths of the business
  • Cost savings from the scale provided by a specialist administrator


The onboarding process

The planning and structure of an onboarding process, whether involving a partner with existing funds or working towards the launch of a new product, can make or break the client experience. Failure to manage onboarding effectively can lead to ongoing inefficiencies and misunderstandings that undermine the very reason why administration services have been outsourced in the first place. The administrator you choose should have extensive experience in working with diverse clients, understanding their needs, and developing onboarding solutions that minimize the impact on business activities.

The onboarding process is an opportunity to refine the administration workflow and maximize its efficiency. Approaching it from the perspective of optimizing existing activities and delivering a streamlined service with reduced operating costs should be the focus of the appointed administrator.

Provider experience

The provider should have extensive experience of the buy-and-sell side of the fund industry, along with first-hand experience of establishing new relationships and onboarding new and existing businesses. An understanding of the pitfalls that can occur is a key element in facilitating the success of the process. Establishing clearly documented step-by-step plans – as well as ownership responsibilities and timelines – prior to the start of a project, sets the essential basis for successful interactions through to the BAU environment and beyond.

An expert technical team, which includes individuals with in-depth experience in servicing diverse product types and supporting multiple client requirements, should be sought from the provider. A dedicated project manager – who ensures that agreed timelines, deliveries, and targets are monitored and met throughout the onboarding journey – is also crucial.

The ideal outsourcing candidate should also offer functional expertise across multiple aspects of fund administration services, such as Treasury, Accounting, Tax, and Compliance, even where they do not form part of the agreed services. Extensive knowledge of how these disciplines impact overall delivery and client requirements ensures that interactions and dependencies are understood and considered in developing the service model best suited to the client.

BAU teams should be allocated from the start to work alongside project teams throughout the process, ensuring continuity of service and clear lines of responsibility and contact for the client once onboarding has been completed.

Operational best practice

An Initial ‘Statement of Work’ or Service Level Agreement (SLA), which includes timelines and sources of data and reporting, should be agreed. This ensures there is no misunderstanding as to the detailed nature of the services being onboarded.

Data inputs, delivery timelines, reporting, and other outputs identified in the sales proof-of-concept phases form an essential basis for this initial SLA, and are supplemented by further comprehensive discovery work. This facilitates the review and streamlining of processes, delivering greater efficiency and potential cost savings to the client. The end result should be a set of clearly defined deliverables, timings, and responsibilities that are measurable against a jointly agreed set of key performance indicators (KPIs).

Partnership approach

Your outsourcing partner needs to apply a flexible approach to onboarding. Clients with a large portfolio may benefit from a staggered go-live approach. This facilitates refinement of existing workflows, while reducing the risk associated with an all-in-one approach, which can impact business continuity. Discussing the most appropriate approach for your portfolio, rather than accepting a standard ‘off-the-shelf’ solution, contributes significantly to an enhanced operational model in BAU.

A parallel period is also an approach to be considered as an effective way of further refining the service and ensuring assumptions made in the initial statement of work are validated before BAU to avoid miscommunication and negative impact to existing clients.

Ownership of tasks – including establishing clear project parameters, responsibilities for obtaining and processing data during a parallel run, and reconciliation of the client and service provider records – must be established up front in a detailed project plan. Success criteria are agreed, laying out what tolerances are applied to the reconciliation of provider and client records and what the acceptance criteria are to move to BAU. This avoids extended parallel periods, preventing a prolonged and disruptive onboarding experience.

Relationship management

Waypoints and success factors on the journey to BAU must be agreed with the client in a detailed project plan managed by a dedicated project manager, prior to commencement. This should include testing requirements and scenarios, criteria for completion of any parallel processes, and a step-by-step plan for onboarding in successive tranches by product, fund, or client type, best suited to the client’s requirements and business demands.

The onboarding journey should not be a cookie-cutter exercise. It requires a clearly structured and collaborative approach. The flexibility of your appointed service provider is key to refining operations, building effective relationships, and delivering an optimal servicing model. Clear, agreed documentation and dedicated teams with in-depth, diverse industry experience are the cornerstones in ensuring the move into BAU is successful.

Secondary fund specific case study

With regards to fund of fund onboarding, in-depth experience in processing secondary transactions is a key consideration in your decision to outsource and your choice of administrator.

Establishing which data points should be captured for reporting and monitoring purposes, together with the information flows to and from the client and the service provider are essential. This includes identifying the sources of this data, ahead of the onboarding process and into BAU. Defining responsibility for the preparation and provision of SPV accounts is also an important aspect to agree.

The provider should have a tried-and-tested process for handling secondary deals that includes clearly documented procedures and a standardized communication format. This expedites the administrative process for transactions that are often time-constrained and complex in nature. Key information, such as unfunded and discounted values at purchase, along with the process for any deferrals and hedging must be agreed in a template that avoids confusion and ensures all data points are captured and processed on a timely basis. This should be flexible enough to be tailored to the client’s requirements, to include additional deal information along with the core data required to process transactions and report them.

Secondary managers should have the ability to track the underlying assets of an invested fund in both a primary and secondary view. In line with best practice, filters should be provided to allow the investor to see the assets on a primary total fund basis. A secondary view facility should enable an investor to see an adjusted cost basis of the portfolio company SOI based on the timings of the secondary purchase. Data should be set up to reflect how a deal or project needs to be accounted for, including the set-up of deferrals, leverage, and hedging. This enables investors to see the direct impact of these financial instruments against project return. Colmore’s HELIOS reporting system is home to 100+ custom reporting templates including secondary reporting templates and dashboards. Colmore can create custom reports that track your secondary fund performance relative to your own.

Access to GP and fund administrator portals and establishing payment and settlement details ahead of final execution of deals further ensures a seamless completion of these deals and timely recording of transactions for reporting purposes. This is especially important during year ends and holiday periods.


About Colmore

Colmore, a Preqin company, is a market-leading, technology-driven private markets investor services business focused on the Limited Partner and Allocator market. The business operates from offices located in New York and Dallas in the US, and London and Birmingham in the UK and Singapore in APAC. Colmore employs more than 260 professionals, with the business monitoring over 6,500 private market funds and 60,000+ holdings.

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