EisnerAmper Q&A with Beth Mueller, Co-Founder & COO, Socium Fund Services
- Jul 20, 2020
Socium Fund Services is a New York, New Jersey and California-based fund administrator that partners with closed-end funds including private equity, venture capital, real estate and private debt managers in the middle market, typically from $100 million to $1 billion in assets under management (“AUM”).
I sat down with co-founder and COO Beth Mueller who shared her outlook that as the closed-end funds industry has matured and received increased institutional investor interest, these managers have placed a growing importance on the implementation of robust technology for their accounting and reporting requirements to ensure allocator confidence. She also discussed how the overall fund administration industry is poised for increased consolidation and, finally, coinciding with the centennial anniversary of the women’s right to vote, she shared how having women mentors and role models inspired her to launch and co-found Socium. She continues to champion for the up-and-coming generation of women in alternative investments.
The closed-end funds industry has become increasingly popular the last few years since investors have been seeking out diversification and income-producing assets. Can you please share your outlook and some trends you are seeing?
The closed-end funds industry has indeed continued to gain momentum the last handful of years since investors are looking for other assets to generate alpha besides hedge funds. Even before COVID-19, private credit, or private debt, has garnered allocator attention and the pandemic just so happened to accelerate this. Our clients have told us they have received interest from all types of investors from high-net-worth individuals, family offices, institutions and more.
Meanwhile, on the fund launch side, we have seen an uptick in distressed offerings in real estate and credit asset classes to take advantage of the downturn and deploy capital at discounted prices.
As even more investors have expressed interest in closed-end funds, it’s important that fund managers get institutional-ready. Can you discuss how managers have started to leverage high-touch technology to streamline their investor reporting?
To start, closed-end funds are now doing (en masse) what hedge funds did following the 2008 global financial crisis, implementing robust technology to execute their accounting and reporting to ensure investor confidence, especially as competition for large institutional mindshare heats up.
Private equity funds and other closed-end funds, for example, are now collectively realizing that technology automating the reporting process—whether reconciling bank accounts, valuation adjustments, calculating carried interest or internal rates of return—divulges streamlined reporting to investors.
Relying on spreadsheets for accounting and reporting is outdated, and today’s complex fee structures are calculated more accurately and efficiently with fully automated and auditable technology. Despite the fact that we are seeing more and more fund managers launch complex structures, we advise them to keep it simple and think about what is really necessary. Complexity leaves more room for errors and increases the fund’s expenses in the long run.
One trend that we are seeing amongst closed-end fund managers is when it comes to calculating carried interest, whether at a fund level or deal by deal, the waterfall calculation processing is becoming more automated. Previously, waterfall calculations were done in Microsoft Excel spreadsheets, which is much more time consuming and leaves an operator vulnerable to costly errors.
Before my career in the funds administration industry, I worked for handful of fund managers where I realized that a fund administrator is key to streamlining investor reporting.
On the topic of the fund administration industry, over the last decade plus, the industry has experienced increased consolidation with many mergers and acquisitions. What is your outlook for the space going forward?
We anticipate that the industry will continue to face increased consolidation. Due to this trend, which transpired after the 2008 global financial crisis, there are now fewer high-quality options for emerging managers in the $100 million to $1 billion AUM range to go to for their fund administration requirements; it’s about having the right-sized partner from a service provider perspective.
This interview would be remiss if we failed to discuss how COVID-19 has impacted your business. Can you please discuss how, if at all, Socium was affected?
As I mentioned earlier, having robust technology is key for our clients. We also made sure the same was true for Socium and our employees; hence, we haven’t been impacted at all. Since the second week of March, our entire team has been working remotely, and our technology is built for that since every person working for us has the same secure virtual desktop set up at home as they do in the office. Although we don’t anticipate returning to the office until at least September, we have found everyone has been extremely productive working remotely.
This year marks a very important year for women, the centennial anniversary for the women’s right to vote. Hence, I think it’s important to conclude the interview sharing your perspective as not only a woman in alternative investments, but also as a woman leader in the industry.
Throughout my career, I have been blessed with great women role models, who were smart, innovative and entrepreneurial. They inspired me to excel in my career in general and also to venture out on my own.
Socium is a majority women-owned firm, and I believe our diversity has been a key factor in our success. I’m grateful for the opportunity I’ve had to mentor many young women throughout my career. The partners of Socium plan to continue the evolution of bringing more diversity to our industry, which has never been more important.
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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