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Many who start a new private equity firm have some investors lined up for their debut fund, and some reach their first close reasonably quickly. But the time to final close can often be longer than originally anticipated, because LPs who don’t know you need to get to know you, do their due diligence, etc.
So, why hire a fund administrator right away? After all, some private equity firms that have been around for many years still don’t, and it is an extra cost that might seem unjustified for a firm just starting out.
But the benefits far outweigh the cost in the long run, and there are four reasons why.
Accuracy and Efficiency
Fund administration is a complex beast. Keeping track of commitments, capital calls, distributions, and investor reporting requires meticulous attention to detail. A specialist fund administrator ensures these tasks are handled with precision, freeing you and your team to focus on what you do best – sourcing and managing investments.
Compliance is King
The regulatory landscape for private equity is strict. A fund administrator stays on top of the latest rules and ensures your firm adheres to them. This minimizes the risk of audits, fines, and reputational damage – issues that can cripple a young firm.
Investor Confidence
Limited partners (LPs) – your investors – place a premium on transparency and accountability. A third-party fund administrator provides a layer of independence, assuring LPs that their investments are being managed responsibly. This builds trust and fosters long-term relationships with your investor base.
Scalability for Growth
As your firm raises new funds and expands its portfolio, a fund administrator’s infrastructure can scale seamlessly. They have the systems and expertise to handle the increasing complexity of your operations, allowing you to focus on growth without administrative headaches.
Mitigating the Cost Factor
Despite these four benefits, hiring a fund admin costs money. Again, there are some considerations for emerging private equity fund managers here that may help mitigate that cost.
Negotiate Fees
Don’t be afraid to negotiate service fees with potential administrators. Many offer tiered pricing structures based on fund size or a combination of fixed and performance-based fees.
Start Small
Consider outsourcing specific tasks, like investor reporting or regulatory filings, instead of full-service administration. This can be a cost-effective way to benefit from expert support in critical areas.
Technology is Your Friend
Leverage cloud-based fund administration platforms. These offer cost-effective solutions with features like automated reporting and investor portals, streamlining workflows and reducing manual effort.
Hiring a fund administrator may seem like an initial hurdle that can be punted down the road, but it’s an investment in the future of your firm. It lays the foundation for accurate, compliant, and scalable operations, allowing you to build investor confidence and achieve long-term success; hiring a fund administrator for your debut private equity fund may add cost at the start of your journey, but it can save it – as well as eliminating a lot of headaches – down the road.
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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.