Fund managers are prone to making mistakes when selecting external administrators, said an admin expert.
Talking to Funds Europe
at the FundForum International conference, Stephanie Miller, a senior vice president at administration provider SS&C, said mistakes in choosing third-party administrators can lead to significant risks to fund businesses.
Fund administrators have enjoyed a stratospheric rise in recent years, as asset managers grow increasingly comfortable with outsourcing.
But Miller said the biggest mistake is to assume all administrators are created equal when they can vary widely in experience, technological know-how, resources, accounting and regulatory proficiency.
An administrator that lacks experience relevant to a client’s business can be a stumbling block to future growth if it cannot support expansion into new markets, asset classes, and investor categories.
"A common pratfall is a failure to adequately vet service teams. Often fund managers select their administrator based only on contact with business development teams, rather than researching the credentials of the people who will actually be servicing their business," she said.
"Proper due diligence means research into the administrator’s track record, and their ability to support activity in a number of different asset classes and markets. You won't get a clear reading of that from a sales team, no matter their probity."
Oversight and transparency - the ability to keep constantly up to date with what an administrator is doing on a firm's behalf - is likewise essential.
"You need clear visibility into how an administrator makes their calculations - the best, if not the only, way to ensure this is to have a resource that gives you the ability to access their workflow 24 hours a day, seven days a week - after all, while administrators generate the data necessary for compliance and reporting, fund managers themselves are responsible for its accuracy," Miller said.
Fund firms need to be able to track and validate investment data at every stage. If they don't receive full transparency from fund administrators, clients don't receive full transparency, either, said Miller.
Ultimately, any part of a business can be outsourced - but responsibility for its operation can't be, Miller said.
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