Every year, many Private Capital firms reach out to us asking for help selecting a new fund administrator. The existing service model may not align to the firm’s needs, or relationship management issues may have resulted in a breakdown of communication, with no clear path forwards. Holland Mountain’s Head of Back Office Consulting, Jonathan Connelly, walks through some of the key considerations for firms weighing up their options.
Our first recommendation
While we can, and often do, support firms with fund administrator selection, our first recommendation is always to take a step back and look into the issues with the current provider. While a fresh start can feel like an attractive option, especially if relations have become strained, switching fund administrator can be costly, complex and time-consuming.
In our experience, the majority of issues are fixable. If you don’t work to understand the root causes now, it’s likely that the same issues will arise again with the next provider. By looking deeper into what’s working and what’s not, you might find that your current provider can still be best placed to support you. Following the review, if a change is still necessary, you will at least be informed of how best to engage with the new provider to set the relationship up for success.
The most common issues
In recent years, Holland Mountain has supported at least 20 Private Capital firms to review their fund administrator relationships. In our experience, there are 5 common issues that cause friction and inefficiencies. These are the first things we look at in a Holland Mountain Fund Administrator Review:
Inadequate SLAs: When firms are unhappy with the current level of service, in many cases, we find that there is no up-to-date Service Level Agreement in place. Without a well-defined SLA, there is a lack of clarity on exactly what the firm needs. Significant, immediate improvements can be brought by agreeing an updated SLA, with service levels, roles & responsibilities and KPIs clearly defined. KPIs can then be proactively monitored, and any shortfalls highlighted and discussed.
Non-standard services: If a firm has a long-standing relationship with a fund administrator, we often see that the administrator is providing services to the firm that are outside of its standard service offering. Non-standard services are a common cause of delays, higher fees and challenges when staff members leave. Holland Mountain works with the fund administrator to identify any non-standard services being provided and advises the firm on the best way forwards. The best model may be to bring certain non-core aspects of the service in-house. Alternatively, it may be possible to adapt the firm’s ways of working to move to a more standard service model. In many cases, the fund administrator’s standard services represent best practice.
High staff turnover: Talent shortages coupled with high attrition rates are industry-wide issues, so switching your fund administrator may not solve this problem. Fixing the two issues explained above can reduce the impact of staff turnover. We also recommend working with the fund administrator on this challenge, ensuring there are periodic updates in place, so any new employees can be brough up to speed quickly. By working collaboratively on this, you improve your overall relationship and become the client that the administrator’s staff want to work for.
Fees: Our experience working with fund administrators enables us to benchmark fees and validate that they are in line with market standard. More costly services are usually the result of complexity with particular use cases. In cases where fees appear high, we’ve often found that this is the result of complexity that the firm is not aware of. We’ve also seen cases where the fund administrator’s services include legacy steps that are actually no longer needed. By achieving full transparency around how fees are calculated, the firm is best informed on how to manage, and potentially reduce, costs.
Relationship Management: Strong relationship management is essential to the success of outsourced fund administration. We recommend that the firm has a named person who is responsible for managing the relationship, keeping track of the SLA and monitoring the KPIs. By meeting regularly with your fund administrator, you ensure there are open lines of communication to quickly identify and resolve any issues. Through these meetings, you’ll also learn of new services or technology becoming available that you could leverage to further enhance the service you are receiving.
In the recent cases where Holland Mountain has been approached regarding a potential switch of fund administrator, through our support, many of these firms have found that the current issues can be fixed and decided to stay with their current provider. When you are experiencing issues, the best way forwards is to have an open conversation, where both parties can come to the table with their challenges. Where this is difficult, due to longstanding issues or relationship strain, Holland Mountain can act as an independent third party to work towards positive change.
In some cases, change will be the best option. For example, if you’re launching a new product in a jurisdiction the current fund administrator can’t service. Holland Mountain’s specialist Back Office Consulting Team has unrivalled knowledge of the Private Capital fund administrator landscape, and can help you find the best fit for what you need.
Jonathan is a specialist in Private Capital operational excellence. Jonathan joined Holland Mountain from Grant Thornton UK LLP, where he worked as a financial services audit manager advising a portfolio of clients that included FTSE 250 investment trusts, REITs, private equity managers and related funds. He has experience in private equity valuation methodologies as well as working with FCA regulated and US reporting businesses. Jonathan is a chartered accountant (ACA, ICAEW) and holds a bachelor of science degree in Mathematics with Economics from the University of Exeter.