Why Do Small Funds Switch Third-Party Administrators So Often?
Taking a look at trends in Private Equity fund administration
Private Equity funds that work with third-party administrators frequently have to reevaluate whether their current administrator is capable of meeting their needs. A new report from Convergence takes a look at trends in fund administration and why funds choose to change administrators. Understanding these trends can help managers of growing funds avoid common pitfalls so they won’t end up with gaps in support.
The numbers overwhelmingly show that it is small and growing funds that most often feel the need to make a change. 80% of advisers that switch administrators oversee funds of less than $100 million. What’s the reason why these relationships don’t work out? Are smaller fund managers just worse at choosing who to work with?
The data from Convergence makes things pretty clear. The number-one reason advisers gave for replacing their fund administrators was when “they have become more complex and need greater support,” with 32% of respondents giving this reason. Second was “dissatisfaction with quality of service provided” at 28% and third was “to cope with regulation” at 27%.
This means that while some respondents were dissatisfied with the service of their administrators, most had no problem with the service at their current level. They had simply expanded their businesses, and outgrew the capabilities of their administrators. Regulatory complexity is a driving factor because it requires a greater level of support and expertise that many small fund administrators simply do not possess.
Convergence summed it up thusly: “There are too many small Fund Administrators, many of whom serve smaller advisers who often move their existing funds to new Administrators that 1) can help them expand geographically, 2) support new investment strategies they want to add, 3) provide middle office services that the adviser requires to limit their need to hire new support staff and 4) offer technology that improves their ability to manage their data.”
Often managers make their choice of administrator in their early stages, and choose a small fund administrator that they feel will give them more personalized service. However, 28% percent of those who switched clearly felt they did not receive superior service. And those who were satisfied with their service had to switch anyway as they grew and expanded geographically. Had they foreseen their own growth, they may have picked a larger administrator to begin with and avoided the trouble of having to switch.
JTC Americas has found itself in a perfect position to service these growing funds thanks to its local support combined with a global reach. Based in the US but with institutional-grade solutions around the world, our team can work with you from the beginning, and as you grow, our customizable solutions can grow with you. Instead of choosing a small or large fund administrator, you can have both.
This is especially true for those who hope to expand geographically. Backed by a 1,200-person workforce across many jurisdictions, JTC Americas can provide localized help in taking on foreign investment, and our relationships can provide access to capital. You won’t have to look any further to find experts in fundraising in the EU. We have experience in helping companies go global.
JTC Americas is also a leader in specialty fund administration when it comes to markets characterized by high administrative complexity. We can help with changing compliance and reporting requirements so that you’re on top of all your data. And when it comes to those “middle office services,” JTC can take on administrative functions thanks to its Corporate Services team, eliminating the need for in-house departments to handle complicated corporate governance requirements.
The best fund administration solutions are based in technology. With accurate, quickly accessible data, fund managers have a better picture of their capital flows and can effectively provide investors with transparency. JTC Americas’ proprietary eSTAC technology platform features built-in compliance and data security, institutional-grade accounting, automated reporting, simple document management, and unmatched transparency. It was also designed with scalability in mind, so your growth will never be limited by capability.
The results from the Convergence report show that funds have changing needs as they grow. The smart decision, then, is to work with an administrator that understands the needs of a small fund while also having the ability to scale. JTC Americas is uniquely positioned to service these funds that have so much potential and require a hands-on administrator with a wealth of global-scale expertise.