The Evolving Role of the Third-Party Fund Administrator in European Asset Management

The regulatory requirements that followed in the wake of the late-2000s financial crisis left fund managers under a mountain of paperwork, often drawing resources and attention from their goal of generating market-beating returns for their investors. Enter the third-party administrator, who provides regulatory reporting support via a lens that provides fund managers an independent perspective as well as one that has first-hand knowledge of what works for a given fund type and asset class.

The third-party administrator: Regulatory navigator

Third-party administrators have long provided the investor services and independent net asset value (“NAV”) calculation that so many institutional investors demand.  At the same time, regulatory reporting for investment funds is a massive undertaking. Whether drafting reports to meet the requirements of new regulations such as the EU Sustainable Finance Disclosure regulation (“SFDR”) , or reporting to a regulatory body,  third-party fund administrators support asset managers by integrating data into reporting and compliance processes, helping to meet investor demands.

The changing role of the third-party administrator

In the past, these services may have been handled by an array of service providers. Recently, however, the trend is to consolidate these services with one provider who has the expertise and depth to handle reporting and regulation across a wider spectrum. Having an administrator with a tried-and-tested track record working across an array of asset classes and fund types will ensure that funds get the proper diagnostic suite of products and services. The capacity, expertise and technology solutions that are required can be critical to delivering the value and efficiencies that fund managers need in light of the increasing regulatory and administrative burdens that they are facing.

Among hedge funds for example, it has become a de-facto standard to have a third-party administrator as part of its fund services ecosystem, though this is often not the case for private assets funds. Both asset classes stand to benefit from having a third-party administrator. Moreover, many regulators or institutional investors have mandates that effectively necessitate bringing on an external fund administrator.

An independent third-party administrator fosters confidence among investors and peace of mind in terms of independent fund valuation, oversight and risk management.

Third-party administrators and client guidance

Third-party fund administrators with a global presence provide seamless cross-border services that help asset managers comply with international regulations and manage multi-jurisdictional funds.

In addition to being on top of regulatory developments, third-party administrators have a top-level view of marketplace trends, including strategies and investor allocations and requirements. This aggregate background knowledge on what is happening across the asset management sector allows third-party administrators to weigh in on how a given fund manager can best approach their operations. A leading third-party administrator has on-the-ground experience in the pain points a fund manager might encounter and the solutions they may need. In addition, fund administrators can play an integral role in the engagement process across all delegates, such as the management company (“ManCo”) and the depository on an ongoing basis.

How fund administrators add value to fund management

Third-party administrators also add value to the fund management team by being attentive and proactive. Here are a few ways in which third-party administrators can facilitate the asset management process:

• Outsourcing to a third-party fund administrator can be cost effective, helping managers reduce operational expenditures;
• Insights and recommendations on fund structures;
• Best practice on operations for newer fund structure types such as the European Long-Term Investment Fund (“ELTIF”) or Investment Limited Partnership (“ILP”);
• Interpretation of reporting requirements, such as AIFMD Annex IV , providing independent oversight enhancing transparency and investor confidence; and
• Bespoke analytics and reporting, thus ensuring a smooth investor experience that leaves the investor with a positive experience throughout the life cycle of a fund.

What fund managers should consider when looking for a third-party administrator

Conversely, service from a provider that misses the mark is one reason that may prompt a fund manager to seek out a new third-party administrator. Reporting and regulatory know-how is crucial to the relationship between a service provider and fund manager. New developments on that front may lead a fund manager to realise that they need a scope of services beyond what their present provider can offer. Whether reporting, middle office services or a requirement from investors for sustainable products, the right third-party administrator can help a fund manager while they focus on growing AUM and new investment strategies. Along these lines, an experienced fund administrator that has worked across numerous asset classes can help guide these new investment forays. Expertise in private assets is key for funds looking to make inroads into private credit; along similar lines, hedge funds require their own particular fund administration systems and skillsets.

Fund managers should also consider the size of their potential fund administrator. Market gravitas can instil a sense of security among investors. Being large enough to have scalability and a base of knowledge across product lines and jurisdictions can offer fund managers looking to break into new markets an indispensable level of knowledge. At the same time, however, the right administrator should still have the bandwidth to give a fund manager the level of attention it needs to ensure a bespoke approach to service and support.

As the industry continues to evolve, the partnership between asset managers and third-party fund administrators will be vital in driving growth, innovation and investor confidence.