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Part 3: Creating an Infrastructure and Budgeting Externally

This is Part 3 of a 4-part series. Please click here for: Part 1  Part 2  

Fund managers need to be willing to prioritize the costs of service providers in order to be successful – the saying “you get what you pay for” strikes true here. Peter Cogan, Co-Head of EisnerAmper’s Asset Management Group, has seen firsthand how successful fund managers factor a number of costs into their budget – including selecting a suite of service providers beyond their auditor to get the operation running efficiently and effectively.

Service providers can be separated into two categories: those that service 1) the fund, 2) the business. 

(1) Fund service providers

Who are they? 

  • Legal counsel (domestic/offshore)
  • Accountant (audit & tax)
  • Fund administrator
  • Outsourced middle office/shadow accountants
  • Prime broker

Comments:
These are fund expenses and therefore paid for by the assets in the fund. Generally, these expenses should not exceed .50% per annum.  If they do, the manager typically subsidizes the excess. 

(2) Business service providers: 

Who are they? 

  • Real estate (landlord)
  • IT infrastructure (hardware, software, support)
  • Compliance consultant
  • Technology research (Bloomberg, FactSet, Reuters, SP Capital IQ, etc.)
  • Payroll/benefits providers
  • Business insurance
  • Graphic designer (for marketing collateral – pitchbook, tear sheet, DDQ, business cards, splash website) 

Comments:
These expenses are paid from the revenue driven by the asset-based management fee and should be kept as low as possible, without compromising the quality of the vendor/provider. 

When selecting a service provider you are also selecting a key business advisor. This advisor must understand your business, your goals and objectives, and have the knowledge to guide you through each stage of your business’ life cycle.

Frank Napolitani, Director, Financial Services Group has nearly 20 years of experience working with organizations including a fund of funds, family office and prime brokerage firms, and providing consulting to investment fund managers.

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