When starting a Fund, it is easy to underestimate the complexities of the operation: raising capital, originating deals, managing cash flow, investor relations, regular reporting requirements, tax returns, and so on. There are a lot of moving parts, which is why many Managers choose to outsource their Fund Administration to an independent third-party.
Whether you are starting a Fund, or contemplating a switch from your current Fund Administrator, finding the best fit can be challenging. There are many different Administrators in the market, big and small, and making the right choice can be a critical factor in the success of your Fund. There are several key considerations you should keep in mind when reviewing your options.
Knowledge of your Industry
The number one consideration when choosing a Fund Administrator should be their experience in your industry. You wouldn’t take your car to a mechanic who specializes in boats, so why trust your small balance real estate (SBRE) fund to a firm that specializes in multi-billion dollar Hedge Funds?
Engaging an Administrator with deep knowledge and experience in the real estate industry means working with accountants who are experienced and able to ask the right questions and provide the right guidance throughout your Fund’s lifecycle; from launch to wind down, through the ups and downs of the market. Quality Administrators also have connections to others with direct experience in the SBRE industry, including Loan Servicers, CPAs, attorneys, and other partners, who can help you grow your business.
Strategic Partnership vs. Outsourced Accounting
Some Fund Managers may be concerned about losing the insights and understanding of a Fund’s dynamics if they outsource administration and rely on a third-party firm to maintain financial and reporting requirements. This is where choosing the right Administrator is critical; you don’t need to lose the experience of having an individual who understands your Fund inside and out. This is the difference between engaging a Fund Administrator in a strategic partnership and simply outsourcing your accounting.
Finding a firm with low staff turnover, where you will have a single point of contact, will give you the benefit of the expertise and independence that comes with engaging a third-party, as well as maintaining the personal touch of having a dedicated individual working on your Fund, with whom you have a strong working relationship. Your Fund Administrator should be an extension of your own team; someone you trust and partner with to deliver accurate and timely reporting to you and your investors.
The Investor Experience
High up on the list of the complexities of managing a Fund is investor relations. Finding a Fund Administrator who can deliver a great experience to your investors through an investor portal is a worthwhile investment. This professionalizes the investor experience through the entire process: from onboarding to delivery of statements and ultimately through wind-down or redemption. Finding an Administrator who can provide a seamless, technology-driven investor onboarding process, including taking care of all the accreditation and compliance requirements, including AML, can play a key role in helping you raise capital from new and existing investors.
Technology can also deliver the transparency many investors now require. Investor portals can save you time responding to investor inquiries by enabling investors to make changes to their contact information and distribution preferences, providing up-to-date information on how their investment is performing, and providing access to Fund and tax documents in a secure environment.
Keeping these three considerations – industry knowledge, finding a strategic partner and managing the investor experience – in mind when exploring your options for Fund Administrators will help you select the right partner from the beginning.
As the only third-party Fund Administrator specializing exclusively in real estate, Redwood can provide deep industry knowledge and expert insight to its clients. To learn more about the benefits of partnering with Redwood for your administration needs contact Lance Pederson at Lance.Pederson@redwoodrea.com.
Neither Redwood nor any of its affiliated entities offer or provide any legal, accounting, or other advice that requires a professional license. None of the materials in this post or any related materials are intended to be or should be considered legal, accounting, or similar advice. No one receiving these materials may rely on them as a substitute for appropriate professional advice. Redwood strongly encourages and advises anyone receiving these materials to consult with their own independent attorneys, CPAs, and other professionals in order to ensure that any actions taken in connection with the materials complies fully with all applicable laws, rules, and regulations.