Choosing a private equity fund administrator

Selecting the right fund administration provider for your private equity fund can be critical to your fund’s overall success. More than 50% of PE firms opt for third-party providers to administer their funds rather than build out their own in-house team. The increasing complexity of regulations and reporting requirements have accelerated the transition from in-house teams to third-party providers with specialized staffing and resources. In addition, many institutional investors view third-party fund management as a best practice for reducing risk by delegating fund accounting to a team of experts. 

Here are four key factors to consider when choosing a PE fund administrator. 

Expertise and personnel

An experienced and specialized private equity fund administrator should be knowledgeable about  evolving regulatory and policy requirements, to help private funds remain abreast of industry best practices. A fund administrator servicing multiple funds and advisers is more likely to be conversant with changes in industry norms and trends than an in-house team focused on the needs of just one firm.

Here are some questions to consider as you evaluate a fund administrator’s team:

• How much experience does the firm have servicing private equity funds? 

• What is the fund accounting team’s experience in servicing private equity?

• How does the fund administrator ensure accurate implementation of your fund’s LPA? 

• How does the firm track workflows and provide visibility into the status of requests?

• What is the fund administrator’s turnover rate?

Turnover

Frequent turnover in fund administration teams presents a challenge to consistent, high-touch service from third-party administrators, particularly when it comes to the types of bespoke fund structures that are common in private equity. Due to the specialized nature of private equity fund administration, losing a fund accountant can lead to reporting delays, inaccuracies, and overlooked workflows.

Having an end-to-end software solution that enables any fund accountant to have all the key context on your fund in one place can prevent the common problems that arise when an accountant leaves a firm.

Software

The underlying software and systems used by a fund administrator are just as important as the personnel. As software moves to the forefront of fund administration service, PE funds should avoid relying on third-party administrators that depend on heavily manual processes and communication. Manual entry can result in more errors and time spent on each task. It can also limit your fund admin’s ability to scale along with your firm as it expands. A holistic platform approach to fund administration ensures the flexibility and scalability required for speed, accuracy, and transparency as you raise additional funds.

Here are some questions to consider as you evaluate a firm’s software:

• Does the firm leverage a proprietary fund administration tech platform?

• Does the team rely on email for all communication and workflows?

• How does the firm enter and process your fund and investment data? Can you access the data in real time?

One of the reasons funds shift from spreadsheets to centralized fund accounting platforms is to reduce their reliance on email communication to initiate and manage workflows. A well-designed fund administration platform gives firms a unified interface for streamlined communication and real-time visibility into fund performance. Automated workflows for investor onboarding, book management, and fund reporting reduce opportunities for data-entry errors in addition to automating operational tasks. 

Accurate and timely reporting

PE firms face multiple challenges if they’re unable to meet the critical 45-day end-of-quarter reporting deadline. A software-enabled provider with automated data collection and reporting is better positioned than traditional providers to help clients avoid the costs associated with delays.

Risks of traditional fund administration providers

Delays from third-party administrators who rely on manual processes can quickly add up, leaving CFOs and their teams insufficient time to complete their reporting. When a fund admin provider relies on email and static Excel files to distribute critical reports and analyses, CFOs and other personnel may need to engage in extensive back-and-forth to ensure accuracy. Maintaining shadow books alongside fund accounting can also result in limited real-time visibility and increased internal resource allocation. 

Questions to consider as you evaluate a firm’s reporting standards include:

• What end-of-quarter reporting timelines does your fund administrator follow? 

• What systems is your fund administrator using to calculate and generate reports? 

• What format will the firm use to share the reporting?

Cost of servicing

The decision to move from staffing fund operations yourself to a third-party fund administrator often comes down to cost. A third party administrator is typically cheaper than hiring in-house staff, and the cost can be passed to investors as a fund expense.

The price of a third party fund administration depends on several factors, including fund size, the complexity of the fund, expected activity, and additional services. 

Questions to consider as you evaluate a provider’s fee structure include: 

• What fees are included in the contract? 

• What types of activities and services can incur additional costs during the year?

Fees for additional services can accumulate quickly as hidden quarterly charges, which can cause your fund to exceed its budget and can impact fund metrics. Review the third-party administrator’s fee structure to avoid unexpected expenses beyond the contract terms.

Carta for private equity fund administration 

Carta pairs top-tier service with cutting-edge software. The Carta team is made up of experienced private equity and venture fund administrators, including experts with experience at BlackRock, SS&C, Citco, and Goldman. Our team also includes policy experts and product leaders who are driving policy and innovation forward in the private markets, including helping funds navigate the SEC’s new Private Fund Adviser rules.

Carta’s platform approach distinguishes our fund administration service from other third-party service providers. The Carta platform offers a unified system tailored to your fund structure—one that can scale with your needs, as well as provide real-time visibility into fund accounting and reporting. 

Carta’s proprietary general ledger accounting platform ensures automated transaction reconciliation, allowing you to generate real-time SOIs, LP communications, waterfall scenario modeling and financial reports whenever you need them. 

Carta fund admin clients can communicate and make requests directly within the Carta platform or through the Carta Carry mobile app. Carta Carry lets users track the status of their requests, which means you’ll never have to wonder about the status of your capital calls. Transparent annual pricing ensures predictable expenses for your fund with no hidden fees.

Want to learn more? Talk to an expert today.

DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta Inc. ("Carta").  This communication is for informational purposes only, and contains general information only.  Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. ©2024 eShares, Inc. dba Carta, Inc. ("Carta"). All rights reserved. Reproduction prohibited.