Fund of Funds Administration Explained - EFSI

Fund of funds providers – or multi-manager as the term seems to be these days – face a different challenge reporting returns to their clients. Each of their underlying fund investments uses its own administrator, and each administrator delivers data in a different structure, timeline, and format.

Outsourcing the fund administration function of a fund of hedge funds, fund of private equity funds or fund of real estate funds enables the fund of funds manager to realize the same benefits that a single fund manager enjoys – lower costs and less time spent on admin. But there are two added benefits to fund of funds managers of outsourcing their fund administration function.

Lower Costs

As with single manager funds, outsourcing to a specialist fund administrator can lower both direct and indirect costs, like time spent.

In-built shadow administration

A fund of funds manager can use an outsourced fund administration provider as both the primary administrator of their own product and the shadow administrator of the underlying products. This enables the underlying managers to reduce costs of having a dedicated shadow administrator, adding alpha to the returns.

What about the conflict of interest?

There is a conflict of interest inherent in the fund of funds administration space. Having a fund administrator that is the primary administrator of one or more of the underlying fund investments and the fund of funds product means that there is an element of the administrator ‘marking their own homework’. That’s why both single manager funds and fund of funds should always use a shadow administrator, whether that’s at the single manager level or at the fund of funds level.

Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here.

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EFSI is an independently owned, SOC-1 compliant, full-service fund administration firm. We provide accounting, reporting, administrative, and capital introduction services to a wide range of alternative investment funds including hedge funds, funds of funds, private equity funds, real estate funds, venture capital funds, and family offices. The center of EFSI’s service incorporates resilient technology and accomplished staff, providing clients a tailor-made service with exhaustive transparency. Give us a call today or reach out to our support team online. We look forward to hearing from you soon.