Fund administration is a field with many facets that includes a wide range of services. Previously considered a back-office function, fund administration now plays a more significant role in the business that has been transformed by a complex and expanding list of regulations.
Given that projections indicate that the industry will keep growing, fund administration for alternatives will continue to present growth opportunities for service providers. According to Preqin, global assets will total US$14 trillion by 2023.
Several factors will fuel this growth including the expansion of allocations to alternative products, an increase in demand for direct private deals and the development of new products and innovative techniques. These expansion drivers will help investors and asset managers to better understand the business case for outsourcing services in the front, middle and back offices.
What are the trends in the fund market to watch out for in 2023?
Fund administrators will have greater chances to scale up their delivery of streamlined services for the offices, considering the following fund administration trends in 2023 such as regulatory changes, technological developments, etc.
A more stringent regulatory environment
Since the financial crisis, several new regulations, such as the Alternative Investment Fund Managers Directive (AIFMD) and technological advancements that have led to an increase in the digitalisation of processes have had a substantial impact on the fund administration industry.
These factors have shifted compliance, transparency and information sharing to the centre of every activity, requiring fund administrators to ensure all facets of the fund adhere to its extensive legal and regulatory requirements. Accordingly, fund administrators are responsible for ensuring that all counterparties carry out their mandates in addition to maintaining a compliance monitoring program which includes adherence to anti-money laundering rules.
However, regulation is not the only factor at play. Due to market conditions including low-interest rates and investors’ desire for yield, new and frequently more complex portfolios with specialised assets have emerged. In order for the fund manager to produce a high-quality product, there are therefore several moving elements and rules that must be interpreted at various phases of the investment process.
The sector should be ready to adapt to changes in regulatory requirements and develop a crisis response strategy. This calls for a wider range of services available in fund administration to assist managers in adhering to global regulatory reporting requirements that are constantly changing.
Fund administration is a function of business that involves data gathering from ongoing investment activities in order to produce financial reports. Investment managers, investors and regulators utilise these financial reports to make choices, compute taxes and guarantee compliance with regulations.
Fund administration procedures are thorough. Back-office employees are responsible for keeping the books and records of an investment management company. The accuracy of the data and the timely submission of reports are essential.
Technology becomes a crucial component of back-office activities due to the significance of data to fund administration. The correct fund accounting software can assist with automating operations, standardising data and simplifying reporting, whether a fund’s team decides to manage fund administration internally, externally or through a co-sourcing arrangement.
Expansion to other types of alternative investments
Fund administration is a requirement for hedge funds as seen by the rise in outsourcing to fund administrators in the past years. Private equity and real estate funds, in contrast, have a lower fund administrator penetration rate.
However, since there has been a considerable increase in private equity funds, it will have an impact on fund administrators. As limited partners prepare to increase their allocation to private equity funds, the value of assets in these funds will rise and continue to expand.
The same factors that prompted the switch to fund administrators in the hedge fund industry also apply to private equity and real estate funds. Investors in private equity and real estate funds are seeking third-party validation of assets and performance, just as it happened with hedge fund investors.
Growth in outsourcing
Heightened regulation, rising internal expenses, technological advancements and growing investor demand for transparency are just a few of the significant factors that contributed to the trend toward third-party fund administrators. In Europe, the number of fund managers who use third-party administrators has risen to almost 70 per cent in 2020.
However, outsourcing tasks to a third-party administrator who then offshores those tasks to workers in less expensive areas is not the same as outsourcing tasks to a third-party administrator. The attention to supply chain risks has been brought about by COVID-19 and the widespread transition to remote work.
Outsourcing has distinct advantages, in contrast to the hazards of offshoring, including the ability of a third party to seamlessly adjust to a fund’s demands in real time regardless of size or whether scaling up or down is necessary.
The emphasis of asset managers and investors will remain on incorporating Environmental, Social and Governance (ESG) measures into their risk frameworks and ensuring that their administration partners are prioritising ESG within their companies. As businesses come together globally to help their communities, corporate responsibility must be a priority for both publicly traded and privately held businesses.
In conclusion, the future of fund administration is promising because of the continuing partnerships between administrators, asset managers and asset owners within the alternatives industry.
Why do you need Bolder fund services?
Working with an outsourced fund administration firm like Bolder Group can provide specialised fund services for certain types of clients, such as hedge funds or private equity firms.
One of the biggest advantages of outsourcing is that it relieves a team’s already taxing workload of back-office duties. Managers can concentrate more on portfolio management and customer interactions by outsourcing accounting and reporting to a qualified third party.
In addition, you will not have to worry about data management, reports and compliance, complicated NAV calculations or other administrative tasks if you work with a fund administration company as a partner.
Our fund solutions
As a fund administration company, we are aware of the difficulties in managing funds and the complexity of reporting requirements. We can manage your hedge funds, PE & VC funds, cryptocurrency funds, real estate funds, fund of funds and managed accounts with our fund solutions.
Our fund solutions also cover treasury, legal, fund formation, accounting, NAV calculations and domiciliation, amongst others.
To learn more about fund administration and our services, contact our team or visit a Bolder office near you.