The Ins and Outs of Fund Admin Staffing

Navigating Your Choices
When it comes to fund administration, GPs and managers have two basic choices: in-house or outsource. Naturally, each option offers its own benefits, and each carries its own drawbacks. Nevertheless, it’s an important decision for the health and future of the fund.

Investors are increasingly anxious that their private equity funds have superior back-office capabilities. LPs want to know that accounting, taxes, and other administrative functions are working seamlessly.

By the same token, GPs and managers need fund administrators with the know-how and proven track record to show they can take over these critical functions. Without a good administrative team to handle those tasks, GPs would be overwhelmed by the unending laundry list of back-office jobs.

So, what should GPs look for when deciding between in-house and outsourced fund administration support?

The Top 3 Considerations
These are the three most important factors in making the choice of in-house or outsourced fund administration:

Quality of Work
No matter what, your fund administration team must consistently deliver top-quality work. Minimizing the chances of honest mistakes (to say nothing of outright fraud) should be your top priority.

Outsourced fund administration firms must have an impeccable reputation for timely, excellent work. With a large team of people backed by rigorous checks and balances, the likelihood of errors plummets. Additionally, the temptation to commit fraud is more than outweighed by the knowledge of those checks and balances.

In-house teams are usually smaller, and that makes it easier for mistakes of all sizes to slip through. The concurrent lack of systemic checks can also make it much easier for an unscrupulous employee to try something underhanded.

Focus and Attention
The best fund administrators are focused solely on those tasks. That single-minded approach greatly reduces the chance of costly errors slipping into financial reports, or other serious mistakes.

Outsourced fund admins are typically only responsible for those back-office jobs like accounting and reporting. That laser-like focus is different from in-house teams, which are often being pulled in multiple directions at once. When completing tasks take time and attention away from those in-house teams, huge errors can be the result.

The Cost
How much does it cost to work with an outsourced provider? Typically, those relationships are built on flat monthly or annual fees. For smaller funds, these are usually very affordable prices.

How much does it cost to hire an in-house team? First, there’s the salary (or, salaries). Then, there are employment taxes. Benefits, bonuses, and other costs quickly add on to these totals, until even a small in-house team can quickly overwhelm the budget of a modest fund.

While it’s true that outsourced costs go up as the complexity of the fund increases, it’s also important to weigh the opportunity costs involved. If a small, in-house team is managing a complex fund, the likelihood of errors and fraud rises. Using a large outsourced fund administrator greatly decreases the odds of those problems, more than making up for increased costs due to potential complexities.

Outsourcing to the Rescue
Just a quick glance at these three important considerations shows that outsourced fund administrators offer several very real benefits to GPs and managers. It’s perhaps unsurprising, then, to read articles like this from May of 2020: The rising tide of outsourcing.

For years, now, both GPs and investors have been leaning more and more towards outsourced fund administration as a winning strategy. LPs love the capabilities this gives the fund, making it a more stable and robust investment choice for their money.

GPs and managers, meanwhile, have seen this positive effect on investors. They’ve also seen the positive effect outsourced fund admins bring to the GPs themselves: less stress and more time to focus on what they love. Little surprise that a 2020 survey of private fund CFOs found that they intended to increase their outsourcing efforts for accounting, technology, tax, and compliance services.

The Best Option for Your Fund
Because of the advantages in cost, reliability, and appeal to investors, using an outsourced fund administrator makes more sense than ever in 2021.

Reliant Fund Services wants to make it easy for your fund to “test drive” what that outsourced approach looks like. To do that, we offer our Shadow Program. For three months, our experts will follow your administration efforts. We’ll analyze what works, and make recommendations on opportunities for improvements.

When you see our professional fund administrators in action, you’ll see how game-changing it is to bring an experienced, capable team onboard. Because we approach every fund as though we were your employees, you’ll get the individual attention your fund requires, while also enjoying the depth of experience our team brings to the table.

Contact us today to talk more about our Shadow Program, and how Reliant Fund Services can make the in-house vs. outsourced decision the easiest choice your fund will make this year.