A Guide to Outsourcing The Administration Of Hedge Funds: Part 6: Creating a Long-Term Relationship
Creating a Long-Term Relationship - Common Problem Areas
It goes without saying that long-term relationships are built up over time and, I would suggest, are largely dependent upon the service provided by the Administrator. This essentially means the efficiency of the working relationship, in terms of the Administrator's ability to produce the numbers and provide administration services and, particularly, Shareholder services, promptly and accurately and in the manner that the client wants. But this is not a one-way street. The Administrator will be unable to provide a fully efficient service if it does not receive all of the information that it needs promptly and efficiently.
The provision of that service and, therefore, the creation of a long-term relationship, is, itself, dependent upon three primary factors. These are: the Administrator's technical capability; its ability to communicate; and the personalities, involved on both sides.
It goes without saying that, for the Administrator to provide a good and efficient service, the Administrator will need to have the technical capability. This means not just the technology, but the qualified staff who understand what they are doing and who understand what the Hedge Fund is doing. They don't necessarily need to understand the minutiae of the actual investment strategy, although that would obviously help, but they do need to understand the instruments used and particularly the complex ones.
Of course, it won't matter how technically proficient the Administrator is if the communications between the Administrator, the Hedge Fund Manager, as well as the Prime Broker, Clearing Broker or Custodian, are not up to par.
Ideally, the Administrator should be able to draw down all of the data that it requires from the Brokers or Banks electronically so that it gets the information promptly and efficiently. But it is not just electronic communication that matters. The Hedge Fund Manager needs to be able to communicate with the Administrator and, for that to work efficiently, the Hedge Fund Manager needs to have a single person or team with whom the Manager communicates on a daily, or when needed, basis.
In this regard, it is important that the Hedge Fund Manager should visit the Administrator's office. Getting to know people on a face-to-face basis always helps - the most important factor in a long term relationship is building mutual trust and understanding.
On the whole, if the individual Administrators realise that they are there to provide a good service and a personalised service, and can be seen to be striving to do that, and, on the other hand, if the Hedge Fund Manager realises that he is getting a good service and that even Administrators are human, a good relationship can be built up over time.
A lot of this comes down to the quality of communications. Errors and delays will occur and these are aggravating to the Manager, but they become really annoying if the Manager doesn't know what's going on. Therefore, it is important that the Administrator handling the account communicates with the Manager and keeps him informed in bad times, as well as good.
Dermot S.L. Butler is Chairman of Dublin-based Custom House Administration & Corporate Services Limited ("Custom House"), a company that specialises in assisting clients in the organisation, establishment and administration of alternative investment and hedge funds. Custom House is regulated by the Irish Financial Services Regulatory Authority ("IFSRA"), and authorised under Section 10 of the Irish Investment Intermediaries Act, 1995.
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