You're not happy with your fund administrator. Maybe the service has slipped, the fees no longer make sense, or you've simply outgrown the relationship. You know a change is probably overdue. And yet you stay, because the moment you imagine making the switch, two thoughts stop you cold: My investors are going to have a lot of questions about this. And right behind it: Honestly, this sounds like a lot of work.I’ve heard this countless times as Managers contemplate making a change in their Fund Administrator. The investor concern is almost always the same; that investors will perceive that the outgoing administrator has made errors in the NAV calculation and that current valuations can't be relied upon.
Yes, we’re human and administrators can and do make mistakes from time to time. Normally, errors are discovered and remediated long before an investor receives their statement. Clear and concise communication with investors prior to making the change is paramount in mitigating any real concerns investors and managers may have which can include:
- Data loss: Systems used by administrators are frequently able to “talk” to each other or, in many cases, historical data kept by the outgoing administrator can be uploaded directly into the new administrator’s systems, therefore protecting the fund’s history. If issues do present, it may be possible for the incoming administrator to rebuild a fund’s history manually. In most cases, however, having a full rebuild of historical data simply isn’t necessary or required.
- New logins and passwords: Not sure that all readers of this are in the same boat, but between work and personal life, I seem to have about 400 different logins and passwords. It’s difficult for this argument to hold much water. There is also an assumption that one set of login information for the old administrator will be replaced by the new.
- Cost: Many administrators will waive the cost of conversion, and, in many cases, a move is being made as a cost savings measure. Over the past decade, due to advances in technology and a very competitive landscape, administrative fees have remained steady or dropped in many cases. Managers who don’t explore may in fact be doing a disservice to the fund and its investors.
- Too much effort: Hard to mitigate this fear, however, in our case, we employ a project management team that tackles the majority of the heavy lifting, including working with the outgoing administrator, communicating with the fund’s other service providers, conducting any necessary due diligence, etc. There is simply no way to cut the manager out of the process entirely, but we do what we can to make it as painless as possible to the manager and investors.
One thing is certain, while switching administrators may present some pain points, the real risk is staying with the wrong one.