Five Reasons Why a Private Equity Firm Should Outsource their Fund Administration
New technologies and advancements are constantly enhancing operations at fund administration companies, making it valuable to explore STP’s Top 5 Reasons why a Private Equity firm should consider outsourcing their fund administration.
1.) Access to Technology
Often firms who insource do not have the resources to license the top fund accounting software due to costs or expertise. Partnering with a reputable administrator will provide indirect access to these platforms that revolutionize the fund accounting process, as opposed to upkeeping the official books and records in QuickBooks or other general accounting software that is not meant for fund accounting.
Utilizing a sophisticated fund accounting platform reduces the likelihood of accounting errors and provides access to enhanced investor reporting. We often see that investor reporting and financial statement preparation are not a main area of focus for firms that insource, however, with access to this type of technology, these secondary focus items not only increase reporting but amplify the investor experience.
2.) Access to Resources
Often, staff at firms that handle their own fund accounting are juggling multiple roles and may not dedicate sufficient focus to the process. These firms often lack the financial resources to fully staff a dedicated fund accounting team, encompassing roles from accountants to investor servicing and financial statement preparation.
By collaborating with a third-party administrator, firms gain access to seasoned experts in fund administration. These professionals possess deep expertise and stay abreast of industry regulations and best practices, thereby ensuring that your operations maintain compliance and operate efficiently.
3.) Enhanced Expertise
Investment managers often prioritize deal closures over staying abreast of evolving reporting standards and regulatory changes. The recent vacating of the Private Funds Rule by the U.S. Court of Appeals for the 5th Circuit exemplifies this dynamic, underscoring the critical importance of partnering with a knowledgeable administrator for the future of a fund.
A trusted fund administration service provider such as STP ensures strict adherence to regulatory mandates. Their expertise in compliance and risk management effectively mitigates potential risks, thereby safeguarding the reputation of your firm.
4.) Costs
Although outsourcing to a third-party administrator may initially appear costly, it often proves to be a more economical choice for firms in the long run. For instance, managing middle and back-office functions internally necessitates paying salaries and associated overhead for employees, along with licensing fees for required software (as mentioned earlier).
Outsourcing provides access to specialized services, leading to substantial reductions in overhead and operational expenses compared to maintaining an internal team. This allows for more efficient resource allocation and a sharper focus on core business activities.
5.) Scalability & Flexibility
Outsourcing offers a strategic advantage by enabling firms to customize service levels according to their current needs. This flexibility is particularly valuable during periods of rapid growth or market volatility, ensuring that operations remain efficient and cost-effective.
Through outsourcing, companies can quickly adjust service levels to accommodate increased workloads during expansions or scale down during quieter periods to manage costs without sacrificing operational excellence. This adaptability enhances organizational agility and allows firms to prioritize resources towards core business objectives, promoting sustainable growth and competitiveness in dynamic market environments.
Conclusion
Outsourcing your back-office activities to a third party continues to trend upward as the demand for operational excellence from investors is on the rise and new regulations continue to impact back-office operations. This shift reflects a strategic response to the increasing complexity of regulatory compliance and the growing expectations for transparency and efficiency in financial reporting. By partnering with specialized service provider like STP, firms can navigate these challenges more effectively, freeing up internal resources to focus on strategic initiatives and client relationships.
Choosing the right fund administration service provider is crucial for your firm’s efficiency and success. If you’re disappointed with your current provider, download our eBook, “Beyond the Selection: A Toolkit for Ensuring Success with Your Fund Administrator,” to learn how easy it is to enhance your operations by switching to STP Investment Services.
