Alternative fund managers are increasingly turning to third-party fund administration suppliers to support their business, with 96% planning on using external support over the next three years, a new report finds.
The top three concerns when it comes to switching to another provider are how quickly and accurately data can be migrated, the perception of investors and the market, and the impact this could have on the reporting cycle, according to research from Ocorian, a provider of alternative fund services, including entity administration, fiduciary, and compliance solutions.
Despite these concerns, almost one in four (23%) alternative fund managers are looking at switching to another fund administration provider over the next 18 months in some way. Of those who are planning to make changes, more than one in eight (13%) will switch to an alternative third-party service provider while 7% plan to bring it back in-house and 3% will add another third-party service provider.
For those looking to switch, the top reason given is to improve service levels (75%), followed by improving the quality of data and reporting (69%), better technology (63%), and ESG capabilities (31%).
The study shows that price is the biggest driver (75%) among those who currently use a third-party administrator but are thinking of switching to another provider. This is closely followed by the level of service (67%) and the provider’s overall reputation (50%).
There is currently an equal split between those taking care of fund administration in-house (40%) and those using a third-party administrator (39%). A further 21% use a combination of in-house and third-party administrators. Where alternative fund managers require more than one service, such as alternative investment fund management, depositary, administration, special purpose vehicle, and corporate services, seven in ten (68%) say they prefer to use one provider to cover all services. Nearly a third (32%) prefer to use separate providers.
“As well as giving managers the time and space to focus on portfolio growth and management, outsourcing fund administration is a cost-efficient option that in practice can still be a natural extension of the internal fund team and operating model, while bringing other benefits including industry best practices and the latest technology,” says Paul Spendiff, head of business development, fund services, at Ocorian.
For the study, Ocorian commissioned independent research company PureProfile to interview 100 alternative fund managers across real estate, private debt, private equity, and infrastructure, in the United Kingdom, the United States, France, Germany, the Netherlands, Sweden, Switzerland, Finland, and Norway in April 2023.