Liza Fourie, GAEL
Identifying suitable service providers is an important challenge for fund managers, and is critical to their success and overall efficiency, allowing them to focus on front-office deliverables.
Identifying and appointing a suitable fund administrator has a big impact on the fund manager’s ability to focus on managing the fund in line with their investment mandate as well as investor relationship management.
The role of the administrator can include various aspects, depending on fund-specific requirements and fund manager expectations. To provide client-focused solutions, the fund administrator requires qualified and experienced staff with a good understanding of the fund structure to be administered, as well as a technology platform that will ensure accuracy and speed of operations.
By providing services and administrative support, the administrator is committed to the long-term success of the fund and the fund manager.
Key competencies in the role of the administrator:
There is increasing pressure on fund managers to utilise the services of an independent, reputable provider to conduct the fund administration function while using appropriate technology, specifically with institutional investors making up a significant proportion of the total investor base in alternative fund structures.
Appointing an independent specialist in fund administration gives investors, fund managers and other stakeholders confidence that suitably qualified and experienced resources are performing the administration function. Independent administration ensures that investors are treated fairly and that the fund is administered in accordance with the parameters set out in the investment management agreement and agreed between parties during the fund’s take-on stage.
Creating an in-house administration capability is expensive and resource-intensive for a fund manager to implement and maintain. The technology and supporting infrastructure utilised by administrators is expensive and the costs are more within the appetite of administrators who provide services to a wide range of funds and have the benefit of economies of scale.
The role of the administrator is to work in partnership with the fund manager to ensure the fund’s successful operation, allowing the fund manager to focus on the primary objective: to manage the fund and ultimately to increase shareholder value.
All fund administrators use specialist administration technology, whether it is a fully integrated system with asset and liability capabilities or separate systems for asset and liability administration. The benefits of a single-integrated system approach include: increased efficiency, reduced risk of error, faster valuations in line with the agreed valuation frequency, the ability to support complex structures and reduced IT costs. Parallel valuations are often performed in detailed Excel workbooks maintained to confirm the accuracy of system output, but performing manual calculations only is time-consuming and prone to human error. The ability to automate bespoke reporting requirements is an operational advantage.
The administrator details the standard processes followed to value the instruments held by the funds administered in terms of a pricing policy. Security prices are not independently calculated but rather obtained from price sources or price vendors, as specified in the pricing policy.
As a result of regulatory and industry requirements, a robust technology framework and a focus on cyber security is key to the fund administrator environment.
Safe and secure data storage and the use of online reporting platforms for fund managers and investors are fast becoming an industry requirement. Controls to ensure the protection of personal information of clients and investors locally and internationally in terms of data protection laws is part of the administrator’s requirements.
Expert knowledge and experience
The administrator contributes experienced resources and expert knowledge to the partnership with the client. As part of the set-up phase of a new fund, fund managers often liaise with the administrator on fee methodology and calculations, to understand the practical implications of wording set out in the fund’s founding documentation. Ongoing interactions take place on investment mandate changes or events that could impact the fund. The administrator has a comprehensive understanding of industry practice due to the services it provides to other fund managers and funds.
Professional investor statements and communication
In most cases, a fund manager will require the administrator, as part of the agreed services, to send out investor statements after approval of the fund’s net asset valuation and to liaise with investors on administrative queries. The administrator can generate investor statements from the administration system and adjust the layout based on fund manager requirements, including information on the fund manager and administrator. Investor-related information can also be provided in a format that is easily ingested into the systems of institutional investors. Alternative fund structures, specifically private equity, often have bespoke investor reporting requirements set up on a fund-specific basis. This highlights the importance of system output that is adaptable to client-specific needs.
The administrator’s operational environment, ability to adapt to changing requirements and the control framework are important considerations when selecting a suitable administration provider. If a fund administrator is in possession of an ISAE 3402 report, this should provide confidence in the service provider’s capabilities.
Regulatory changes and horizon scanning
Locally, as well as globally, the pace of regulatory change is increasing. Horizon scanning is a critical part of the administrator’s role to remain current in terms of regulatory reporting and industry changes. Fund managers often expect the administrator to take the lead on communicating changes as well as recommending and developing an administration solution to timeously meet ever-changing requirements. Appointing a proactive service partner will alleviate concerns that the fund manager might not be prepared for upcoming changes.
As regulated financial service providers, fund administrators are held to the high standards of the financial services industry.
As mentioned, the relationship between the fund manager and fund administrator is a key component in a fund manager’s success, allowing the focus on front-office responsibilities. Selecting a fund administrator that will be present in the industry for the longer term is key. The administrator’s business should maintain capital adequacy and a positive financial forecast. The continuity of key employees is an important part of maintaining good relationships with clients. The size of a suitable administrator will depend on the fund manager’s strategy and can also depend on requirements set by institutional investors. Transformation is a focus area for the financial services industry in South Africa and therefore, the administrator’s transformation policy for the immediate and longer term should be considered.
Fund administration is a constantly changing environment, where the regulatory framework (local and global), technology advancements, industry evolvement and bespoke fund requirements need to be considered on an ongoing basis. The impact and cost of regulation and operational requirements are increasing to be in line with international best practice, and this raises the bar for the level of service required from administrators on an ongoing basis. For both parties to benefit, the relationship between the fund manager and administrator should, therefore, be long term. Copyright. HedgeNews Africa – October 2022.
Liza Fourie has been employed in the financial services industry, and specifically in fund administration, since 2010. She completed her BA LLB degrees at the University of Stellenbosch and was admitted as an attorney of the High Court of South Africa in 2008. She has a postgraduate diploma in compliance management and is registered as a certified compliance practitioner with the Compliance Institute of Southern Africa and an FSCA-approved compliance officer for Category I, II and IIA financial service providers.
Fourie joined Investment Data Services (Pty) Ltd, a fund administration business, in 2010 and fulfilled various compliance and legal roles within the company before the acquisition of the IDS Group by SANNE plc in June 2016. Her role was director, legal and compliance, and before her resignation in July 2019, she was executive director of a number of SANNE entities in South Africa and Malta.
In August 2019 she joined the GAEL Group of Companies as an executive director, fulfilling a management and oversight role of all business activities.