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Independent sponsors, also known as fundless sponsors or solo sponsors, are individuals or firms that source and manage private investments without having a committed pool of capital beforehand, and tend to raise funds on a deal-by-deal basis.
This is a segment of the private markets that is seeing significant growth, but they do not always hire a fund administrator. Doing so, however, can be beneficial for independent sponsors for several reasons.
Professional Expertise
Fund administrators are knowledgeable about the regulatory environment and compliance requirements in the financial industry, so they can help independent sponsors navigate complex regulatory landscapes, ensuring that their activities are in accordance with applicable laws. And they have expertise in accounting and financial reporting; they can handle the financial aspects of deal management, including preparing financial statements, managing cash flows, and ensuring compliance with accounting standards.
Operational Efficiency
Fund administrators can handle various administrative tasks, allowing independent sponsors to focus on deal sourcing, negotiation, and value creation. This includes managing paperwork, maintaining records, and handling day-to-day operational tasks. Many fund administrators have advanced technology platforms that streamline operations, which often includes tools for fund accounting, reporting, and investor communication. Independent sponsors can leverage these technologies without having to invest heavily in their own infrastructure.
Investor Relations
Fund administrators can assist in managing communication with investors, providing regular updates, reports, and responses to investor inquiries. This helps in maintaining transparency and building trust with investors. Fund administrators can assist in managing distributions to investors, ensuring that the process is executed smoothly and in compliance with legal and regulatory requirements.
Risk Management
Fund administrators often have robust internal controls in place to mitigate operational risks. This can help independent sponsors enhance the overall risk management framework for their investment activities. And they can provide support during audits, ensuring that all relevant documentation and financial records are in order. This can be crucial for maintaining transparency and credibility with investors and regulatory bodies.
Cost Savings
Fund administrators can achieve economies of scale by serving multiple clients, resulting in cost savings for independent sponsors compared to building and maintaining an in-house administrative and operational infrastructure.
Scalability
Fund administrators offer a scalable solution, allowing independent sponsors to adapt their services based on the size and complexity of their investment activities. This flexibility is particularly valuable for solo sponsors who may experience variations in deal flow. And many independent sponsors wish to launch a pooled investment fund as part of their future growth plans. Hiring a fund administrator is one way that they can prove to potential investors that they are serious about raising institutional capital – larger checks from investors means a heightened requirement for GPs to provide more accurate, independently verified information, faster.
Leveraging the services of a fund administrator helps independent sponsors enhance their operational efficiency, ensure compliance with regulations, and provide a professional and transparent experience for investors, enabling them to focus on their core competencies of deal sourcing, negotiation, and value creation. And it helps the independent sponsor to future proof their business, should they complete any bolt-on acquisitions or look to launch a pooled fund in future.
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Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here.
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.