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.