As potential investors demand higher operational standards, startup managers become more selective and discerning when choosing their fund administration partner and technology platforms.
“Emerging managers have to raise the bar operationally because they need to work harder to get institutional investors,” notes Punit Satsangi (pictured), Managing Director, Head of Business Development, EMEA, SS&C Technologies.
“Attracting investors drives startup managers to conduct more in-depth due diligence exercises around their providers’ technology platform and outsourcing capabilities. “There’s more scrutiny and discussion around the combination of technology and outsourced services firms like ours offer. Given the current pandemic, it has become more critical to assess the administrator on other operational qualifications, such as data protection and cybersecurity,” notes Satsangi.
Setting up a fund is not an easy task. Emerging managers are hypersensitive around cost and want to stay as lean as possible regarding resources, office space, and even their management structure. They also want to continue outsourcing as many functions as possible. They turn to their service providers, like SS&C, to give them an end-to-end solution.
Although cost is always top of mind, a managers’ choice of partner can impact their appeal to investors. “If they choose the wrong partner, there is the potential of limiting potential investment. As a startup, you may only get one shot at it. Therefore, these are additional details managers need to think about,” Satsangi notes.
The right solution
The current environment is highly competitive, so startups need to get to market quickly. Satsangi comments: “The right fund administration partner and technology platform is going to enable a manager to launch their fund quickly and effectively. Doing so will allow them to take advantage of their strategy and the market opportunity.”
Beyond strategy and investment philosophy, fee structures can represent another opportunity for startup managers to differentiate themselves. “They can limit or scale back management fees as the fund grows. Everyone is under economic pressure –— so startups need to be smart about how to tackle this strategy.”
Cost-effectively managing operations can help reduce the fund manager’s operating costs. Front-to-back solutions stand out as a way to reduce costs and time spent on managing multiple relationships. For instance, SS&C’s front-to-back solution for emerging hedge funds includes a native-cloud, all-in-one execution, order and portfolio management and accounting platform powered by Eze Eclipse. A comprehensive compliance and analytics engine is built into the offering, enabling startup funds to take care of their regulatory and risk management needs. SS&C also provides best-in-class independent administration and investor services.
Consistent standards
Although there are certain adjustments managers need to make to remain relevant in the current environment, other considerations have remained consistent, no matter the market conditions.
When choosing providers, emerging and startup managers look for expertise and a proven track record. Satsangi observes: “Whether it’s a fund administrator, prime broker or a lawyer, startups need these players to be experienced and knowledgeable. They want partners who know how to guide them through the process. The best partners will have exceptional knowledge and guidance, the depth of expertise, proven track record, scalability, and, most importantly, the ability to guide customers and show them what to do — how to launch most effectively.”
Specialised expertise is of particular relevance to startups in the context of increasing regulation. “As regulation continues to increase, managers need to examine these new rules and seek advice on how best to comply. They have no option but to embrace it, even though the cost burden increases,” Satsangi explains.
Outsourcing can help provide some respite. Although fund managers remain responsible for complying with any regulation, managers can outsource most of the administrative work that goes into complying with regulation,” Satsangi says.
Regulation never stops, so managers need to dedicate more time to compliance as time goes by. Without the tools to help manage the task, managers may find themselves torn between keeping up with regulation and managing performance. “While it is not an impossible task, having the right infrastructure is vital. Managers cannot take the easy way out. There are no shortcuts. Their approach to regulation has to be verifiable and robust,” Satsangi says.
Although startup managers continue to face challenges, the outlook is very positive. Satsangi comments: “I’ve been talking to many different types of funds — credit, global macro, long/short — and all are embracing best practices when looking to launch their fund. I am meeting with so many new launches, even with the lack of face-to-face contact, which is a great sign for the hedge fund market in 2021.”
Punit Satsangi, Managing Director, Head of Business Development, EMEA, SS&C Fund Services
Punit Satsangi is a Managing Director and Head of Business Development at SS&C in EMEA. Prior to joining SS&C in 2012, Punit held a number of positions at JP Morgan within New Business Development, Operations, Product and Project Management across JP Morgan Asset Management and JP Morgan Corporate Investment Bank. Punit has a Bachelor of Science degree in Economics and a Post Graduate Diploma in European Business Management as part of the Flemings Graduate scheme.
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