What Can Full-Time Third-Party Administrative Do For Your Fund? - PHXA

by Phoenix American Fund Accountant

In the past, it was supposed that only as fund size increased was it possible to develop economies of scale around fund administration. Largely, this is due to the fixed nature of many expenses involved in black office operations. As the total value of assets in a fund grows, the ratio of expenses to assets under management tends to decrease. As a result, for a certain set of very large fund operators, internal administration could make some sense. However, not every fund will inevitably grow to this size. And not every ambitious fund sponsor is interested in cultivating a back office sophistication over the long term that will be a hefty expense in the short term. So, how can smaller funds keep down operational costs?

Some cost conscious fund managers consider utilizing in-house of fund administration software only to find it extremely costly to purchase and inefficient to use on an individual basis. Many managers have in-house administrative work done using Excel spreadsheets. While the software is not a significant cost, manual data entry and fund operations processing using Excel usually proves surprisingly costly in terms of errors, time consumption and reporting limitations. More expensive off-the-shelf software solutions require both a large capital outlay and extensive employee training.

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