Fund Administration Q & A
What Goals Fund Administration Can AchieveFund Associates in Atlanta to talk about the fund administration business and the hedge fund industry. Here is one question I asked him and his response:
Question: I know that many hedge fund managers are focused on three things, keeping costs relatively low, raising capital and performing well. Can the services your firm offers or that fund administration firms in general offer help funds achieve any of these three goals?
Answer: Yes, our firm can certainly assist the managers with all of those items that are of value to them. From a “keeping costs low” perspective, because Fund Associates focuses on the needs of the emerging manger, we are keenly aware of their cost sensitivity with respect to expenses. As such, we typically price our services based on flat monthly fees as opposed to basis points of AUM pricing. We also offer discounted tired pricing schedules based on AUM when funds are just starting to help with expenses. We’ve found that this helps the manager by having a “fixed” cost structure, coupled with a “reasonable” overall cost for administration services. Fund administration firms as whole tend to lower overall costs by allowing the fund manager to outsource what could otherwise be a costly endeavor for the manager to accomplish on his own. Raising capital is inherently, after the trading itself, what most fund managers tend to focus on. In today’s environment, the chances of funds being able to successfully raise money from sophisticated investors if they self-administer is nearly zero. Almost all of the largest hedge fund frauds have been committed by groups that self-administer.
Although fund administration firms do not, typically, serve as third party marketing (TPM) firms they typically are associated with or have strategic alliances with TPMs who can help raise the capital that fund managers are often seeking.
By virtue of the fact that when the entire administrative component of the fund is not resting on the fund manager’s shoulders and those efforts and stresses are removed from his plate, the manager fundamentally is able to perform more effectively for his investors.
Eric Warshal will be answering more of my questions on fund administration in the future.
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