When Asking About Your Back Office…

March 20 2017

…Here’s what GPs and investors actually want to know

These days, investors’ due diligence efforts reach well beyond track record or investment strategy, all the way into the back office. For private equity firms that outsource fund administration, here are a few things GPs and LPs want to know about these service providers. 

Are they SSAE 16, SOC1 certified? 
Any fundraising effort could be tripped up if the fund administrator isn’t SSAE, SOC 1 (Type II) certified, which requires the administrator’s control environment, processes and procedures to be audited by a third party. Systems and processing controls will be vetted extensively by that third party to meet the new standards laid out by the American Institute of Certified Public Accountants. 

Beware the fund administrator without this certification, or one that vows they’re in the process of obtaining it. The SSAE 16 question is top of the list on LP due diligence questionnaires, so it’s a must have in the eyes of the LP.

How experienced are they in the asset class, with your kind of vehicle?
Fund sponsors and investors are increasingly scrutinizing the Fund Administrator’s qualifications; In addition to the SSAE 16, does the administrator have broad experience with firms of similar complexity? A $500 million buyout fund with two vehicles is one thing, but a $2 billion infrastructure fund with eight different investment entities, plus blocker and splitter entities is another. 

If it’s a first time fund or emerging manager, how experienced is the administrator with these launches?  How long has the administrator been in business? All these questions boil down to a single inquiry, which is how stable and capable is that administrator? GPs and LPs want to ensure that the administrator is able to demonstrate top tier performance and the ability to perform at the highest levels in the future. 

Are they cybersecurity focused?
Has the administrator invested in best-in-class cybersecurity protections for the data it maintains on behalf of GPs and LPs?  Is the administrator compliant with the SEC’s cybersecurity initiative?  Showing that fund data is housed overseas, where security protections are less stringent, is a red flag for many investors.

Is your administrator best-of-breed? 
The best administrators should provide superior value to both the GP and their investors through performance at the highest levels, best-in-class and timely reporting, and ongoing dialogue with the GP about trends that impact the industry.  There should be frequent interaction, with a dedicated service team, ideally one with a long history with the administrator. The administrator should be a trusted, conflict-free partner, given the complexity and sensitivity of the tasks at hand. The best administrators will demonstrate a long history of trust and reliability, through unparalleled performance, exceptional client retention rate, and delivering on the client’s requirements in every instance.