Fund administration doesn’t need to be highly inefficient

Dan Ceneviva, head of product at STP Investment Services, breaks down the state of play in the alternative fund administration space and its quest for greater efficiency.

It’s 2023 and we have a wealth of technological automation at our fingertips, whether that means paying bills on an app, applying for a mortgage online, buying online and picking up at a store, or a thousand other modern-day conveniences.   

Given the advancements in technology over the past decade, it’s hard to believe that refinancing a mortgage is simpler than investing in an alternative fund. When you really think about it, though, considering the complexities of these funds and their underlying assets, it makes sense that we haven’t achieved the same level of automation and efficiency that allows for quick and easy refinancing. But there are many fund administrators working to remove the glut of inefficiencies that bottleneck this space and bring it into the 21st century where it belongs.  

One of the most glaring examples we have regarding these inefficiencies is investor onboarding. You can begin to open and invest in a brokerage account in as little as an hour thanks to automation, and the infrastructure and compliance checks can be done within minutes.  

But in the alternative funds space, things look vastly different. Alternative funds don’t have anything that’s end-to-end digital like the broker-dealer space yet. What used to be a cumbersome, weeks-long manual process, which involved filling out a 150-page form, probably rife with inaccuracies, and then having to correct it, has now shrunken to days.  But we’re seemingly nowhere near a same-day process. Though the industry seems to move at a glacial pace, improvements are being made and will continue at a faster rate as the demand for automation in the industry increases.  

The fund administration industry has come so far from the independent bookkeeping that was done 20 or 30 years ago. Now the industry is at the point of no return and an end-to-end solution is the holy grail. Since no one thought to start with a core, flexible, data-centric model at the onset, the industry is just now trying to catch up. With funds sitting at every axis point on the spectrum, ranging from manual, to barely digital, to completely digital, finding solutions that work for all funds can create frustration. 

The not-quite-digital funds that need to be taken offline to have some manual “magic” worked on them causes delays and every time there’s manual intervention such as creating a PDF, we introduce the possibility for more human error. Each fund has unique complexities and requires its own special touch as well as patience to evolve its administrative processes to match where the industry needs to be.  

So why is it that we can’t seem to achieve a quick process? At its core, fund administration is all about managing a fund’s investments and processing its net asset value (NAV) correctly. Back in the day, fund administrators built their models with disparate accounting engines to do this. For years, due to the vast amounts of often siloed data, fund administrators have had to bolt-on additional solutions to facilitate a number of their ancillary services.  

The result is a slow, clunky system that creates inefficiencies rather than eliminates them. While there are so many purpose-filled technologies in the marketplace, such as on the regulatory front, without the right data processing and onboarding strategy, a lot of administrators have been left to do their best with that disparate and siloed data.  

Fund administrators share the frustrations of investors because the current system means they sometimes lack visibility into the process. This frustration then trickles down to the client who cannot understand why in this digital age they can open a crypto account in minutes, but alternative fund investments take weeks or longer.  

The technical aspects involved in fund administration paint a clear picture for us as to why this sector is due for a technological boost. With additional demand for these funds building in recent years, due to the massive uptick of wealth managers and the mass affluent investing in alternative assets, there is a greater need for scalability than ever before. Wealth managers need reports on these funds, not to mention the custodians who are holding the underlying assets. 

The industry can do better and forward-thinking fund administrators who are business process-centric will lead the charge.