Toll Free:
877.456.EFSI (3374)
Much of the chatter in the alternatives world in recent weeks has been about the impact of the sweeping changes that the SEC has made to its private fund adviser compliance process. A lot of the media coverage I’ve seen relates to potential issues around seeding, which seems to be mainly a hedge fund one, even though private markets seeding seems to be on the rise – or seemed to, back in June.
But what’s certain is that private fund advisers now have many more boxes to tick and many more hours to put into their compliance effort. That means more cost, whether you’re a newer manager coming to market, or one that’s raised a few funds already.
One interesting trend we’re seeing at Fundviews Capital is that of mid-sized fund managers, particularly in the private markets space, looking at outsourcing. It almost seems like it’s the wrong way around – firms usually outsource when they’re new and young, and over time they look to bring some of those resources in-house when they’re managing more clients and additional products.
Not so, apparently. Or, at least, that’s what we’re seeing. The benefits of an outsourced middle- and back-office platform aren’t just cost-related, they’re time related, which is now being brought into focus much more due to the new compliance rules imposed by the SEC.
Some basic, back-of-the-napkin math makes the point. If you think about the cost of operations division – you have a manager, maybe a couple of staff. You’re looking at a few hundred thousand dollars in salaries, and then payroll taxes on top of that.
The common rebuttal here is ‘I need someone close to me that I can call on when I need’. Well, any middle and back-office platform that sets rules around when a GP can and can’t call on them isn’t the right fit, of course. But a good one should be seen as if they were an employee of the firm who works from home. That’s not so different in this post-pandemic working world that we have now.
In this new world of added regulatory oversight, outsourcing to a middle and back-office platform provider also provides a risk management reinforcement mechanism. And something else that seems to have gotten lost in the news – there is an additional burden now on fund administrators and their systems that are not built out to provide things such as itemized expenses on quarterly statements. Using a platform provider that already has custom statement capabilities and the ability to comply with these rules already puts the manager ahead of the game.
Last, but certainly not least, launching a fund with a platform provider means that the platform may carry some of the liability risk, and has a duty to the fund’s LPs to ensure that the fund manager is doing the right thing from a compliance perspective – something that LPs will now need to spend even more time on in both pre-and post-due diligence.
Outsourcing isn’t just for the newer and smaller managers, after all.
**********
Gregory Poapst is a Managing Partner at Fundviews Capital. Connect with him on LinkedIn here.
Fundviews Capital is a full-service end-to-end Fund Management Platform. Our platform provides a complete end-to-end solution for asset managers or wealth managers to structure, launch, operate and grow their professional investment funds. You can launch a fund in a matter of weeks, not months, and with minimal capital outlay – not only reducing the risk of launching a fund but also maximizing your chance of success. Once launched, you will find that a dedicated team of professionals is just a phone call or email away at all times, handling all aspects of the back and middle office for your fund.