The work outsourced to service providers is not always reliable, requiring GPs to double check data from fund administration service providers before sending material to their investors, according to speakers at PEI’s Private Fund CFO & COO Seminar 2013 in Hong Kong.
From a show of hands, most delegates typically outsource at least some fund administration work to service providers.
However, there was a general consensus among attendees that even though they are sometimes required to use independent fund administrators, this can be burdensome as the work often needs to be checked.
“Even if you do outsource some part of your activities, one of the things we have realized is that you can’t outsource without supervision,” Ashutosh Lavakare, chief financial officer at Everstone Capital Partners, said.
“You may be able to outsource a lot of the day-to-day activities related to fund administration or accounting, but it is your responsibility to make sure that the output that you receive is supervised, is checked, before it goes out to the LPs.”
GPs are often forced to use independent fund administration services due to regulatory requirements or the investors themselves.
“One of the reasons we look at outsourcing fund admin is that it is a regulatory requirement. We have funds structured out of both Mauritius and now Singapore. In both places you are required to have an independent fund administrator,” Lavakare said.
Some LPs also specifically request the use of independent service providers in some areas, said Felix Wong, chief financial officer at Tsing Capital, a cleantech-focused firm. Because ESG practices are significant and can be very technical, Tsing's LPs have asked the firm to employ an independent fund administrator.
A member of the audience added, “Many investors actually require the manager to outsource fund administration but nobody actually comes back and says [they also] want the fund administrator to handle the following specific areas. So the sense that we have is that maybe this [requirement] is part of a check- the-box process.”
He agreed that once the fund administrator comes back with the required information, firms still need to check that reports are accurate. Moreover, in a number of cases, LPs will come back with questions that the fund administrator can’t answer.
“You end up having to deal with that in-house anyway. So realistically, how much of the work are you actually able to push out to the fund administrator that you don't have to worry about?”
Moderator Greg Lapham, managing director at BlackRock Asset Management, which recently acquired MGPA where Lapham was chief financial officer, said that using fund administrators is often just a “check-the-box” exercise.
“Investors want to be able to put a name against [the process]. [At MGPA], we [were] fund admin-heavy internally because of the double checking. You’re going to have to check it anyway and at the end of the day you are responsible for what you are reporting.”