Outsourcing the Back Office

No private equity firm sets out to build a giant back office, but over time, as funds and firms grow, back-office fund administration processes can take on lives of their own. “A lot of firms start off small, and they have a small back office, but the next thing you know, they have a big operation,” says Robert Woosley, national practice leader at Frazier & Deeter accounting firm. “They never raised a fund with the intention of becoming experts in fund administration, that’s not what they want to do.” The firm’s subsidiary, FD Fund Administration, offers fund administration services to private equity firms and real estate firms.

“There are so many compliance requirements now and pressure from the limited partners for reporting, it’s driving the whole industry to move forward and think more seriously about fund administration,” Woosley says.

Woosley says fund administration was a natural extension of Frazier & Deeter’s certified public accountant capabilities. The firm had a strong relationship with a multi-billion-dollar private equity firm that had its own back office handling investor services, accounting, audits and valuations. In 2013, FD Fund Administration hired a few of those employees from the firm and worked with them side by side. The test was successful, and the new practice line was born.

Today, FD Fund Administration provides back-office fund administration for many well-known firms, including Hamilton Lane and real estate firm Lubert Adler. To give clients a seamless interaction, FD and Frazier & Deeter’s tax division work together. “We have sophisticated tax strategies in-house that really sets us apart from the competition,” Woosley says. “You don’t want a fund administrator that doesn’t understand all the issues that private equity firms are dealing with. We are a one-stop shop, instead of having five vendors who don’t communicate with each other.”

Since FD Fund Administration started operations in 2013, the firm has tripled its private equity assets under administration to more than $30 billion.

“We knew there was a need for this,” Woosley says. “A lot of firms start off small, build strong reputations and grow. They create their own back office, but that’s not their sweet spot. Their sweet spot is finding deals, creating value and putting investors’ capital to work….We understand that administration is not their core, but it is required more frequently.”

Using a third-party fund administrator is becoming more acceptable to limited partners who are looking for a higher level of transparency. Hedge funds are required to have third-party administrators. While it’s not a requirement for private equity firms, each year more PE firms shift to a third-party model.

Working with a third-party fund administrator is a more logical choice, not only because of transparency demands from limited partners but because of the complexity of regulations and today’s ever-emerging investment strategies, Woosley says. “Private equity firms realize they should focus on what they do best and leave this to the experts.”