As cost pressures mount for firms across the industry spectrum, there are many choices fund managers of all shapes and sizes face when considering outsourcing.
Looking to keep costs low and hands-on expertise high, many more GPs are looking to niche players in fund administration. Alternatives Watch connected with one-such firm, Socium Fund Services, which works with private equity, venture capital, private debt and real estate funds.
The firm’s CEO, Michael Von Bevern, shared his thoughts about how funds raising their first institutional offering may consider the important step of outsourcing their back and middle office to a fund administrator.
Von Bevern co-founded Socium Fund Services to bring the alternative asset community a private equity focused fund administrator that combines advanced technology with consultative client service. An entrepreneurial leader, Von Bevern has over 26 years of financial services experience in trading, operations and fund administration.
Prior to co-founding Socium, he was a senior managing director and the head of U.S. operations for the Alternative Investment Solutions group of U.S. Bancorp Fund Services. Prior to joining U.S. Bancorp, Michael was a non-agency mortgage and whole loan trader at Dillon Read Capital Management.
He began his career in public accounting at KPMG and spent time at Merrill Lynch in Fixed Income Operations and PaineWebber as the CFO of the Commercial Real Estate Division.
Barreto: Thank you Michael for agreeing to share your insights and acumen with Alternatives Watch readers. What should firms look for in an outsourced provider? Please tell us where you find the outsourced fund administration industry to be right now and how Socium is differentiated.
Von Bevern: Thank you, Susan.
The outsourced fund administration business has grown remarkably over the last eight to 10 years due the rise of private equity as an approved and often preferred asset class for institutional limited partners. And while originally it was mostly a service for hedge funds with daily activity before the credit crisis, with private equity firms doing administration in house, managers now realize the value proposition of engaging a qualified fund administrator.
Today, there are also a number of very acquisitive firms in the sector that are integrating the fund administration and often technology companies that they buy into the greater corporate whole, while some have less of an integration strategy and businesses may operate relatively independently from the parent in such cases.
2019 saw record high fundraising levels in the alternative asset management space and 2020 levels were expected to come down. With shelter-in-place orders preventing in-person GP/LP due diligence meetings, the numbers will surely come down more and most signs point to emerging managers facing significant headwinds.
Either way, Socium was founded in 2016 by me and Beth Mueller as we saw a real need in the market for a high touch and technology focused fund administrator that is committed to exceeding the needs of its clients. The firm is employee and woman owned.
We understand funds thoroughly, as we were both asset managers before turning to fund administration, so we have a unique perspective and we aren’t going to send you to an unresponsive generic inbox when you have a query. We are proud of the boutique personalized service we provide, as that’s really what funds need as they look to impress LPs and grow.
Socium focuses on private equity, venture capital, real estate and private credit emerging and established managers and independent sponsors.
Barreto: What should fund firms consider with respect to technology as they choose a fund administrator? How might smart use of technology by an administrator firm reduce headcount (in and outside of the fund administrator firm) and manual processing?
Von Bevern: Leveraging best of breed technology is extremely important to me. As a fellow entrepreneur, I also want the best technology for Socium that allows us to be scalable, cost-efficient while being able to create a bespoke service offering based on the specific needs of each of our clients. We do not use Excel to process our work. We have built a full straight-through process that begins with our investor portal through to our automated carried interest modeling software. We believe that leveraging our technology can make a significant difference for our clients during operational due diligence.
Financial services firms can sometimes err on the side of larger teams with every team member executing heavy manual processes in Excel, with very little by way of a forward-looking tech infrastructure, even in 2020.
There is a better way!
We have efficiently multiplied the capability of our firm, having correctly implemented the right technology.
Barreto: What questions should institutional investors ask about a fund’s administrator in the due diligence process?
Von Bevern: Certainly institutional investors should ask to see the administrator’s SOC 1 Type II audit report, conducted by an external audit firm, which should detail what and how well the fund administrator is taking the raw data from the client, processing it through their systems and then ultimately generating financial and partner capital statements that are being relied on by the fund’s investors. It is also customary for institutional investors to ask additional questions around data protection and cybersecurity, especially in time like these where the amount of phishing attacks targeting fund administrators, has risen exponentially.
I would also add that ILPA reporting, and transparency are a key focus of operational due diligence teams today.
Barreto: What advice do you have for the mostly emerging funds you serve and want to serve with respect to fundraising, as the current ‘all remote’ environment that most of us are subject to poses some challenges for GPs seeking new LPs?
Von Bevern: 2019 saw record high fundraising levels in the alternative asset management space and 2020 levels were expected to come down from that high. With Coronavirus shelter-in-place orders preventing in-person GP/LP due diligence meetings, the numbers will surely come down more and most signs point to emerging managers facing significant headwinds vs. more established managers.
That said, allocators have a job to do. They ‘can’t wait and see’ forever, so the key is for emerging GP firms to perfect all operational procedures and the story around them for optimal fundraising success. As strategic advisor, we help our clients put their best foot forward and be as prepared as possible to hopefully get that manager a coveted second meeting.
Barreto: What pitfalls do GP firms fall into as they choose a fund administrator and how would you reframe the due diligence process for funds, so they end up with the right provider?
Von Bevern: Sometimes GP firms angle toward the more ‘known name’ fund administrators, or in the case of spin outs, the fund administrator that was utilized at their prior firm.
We often find that for the sub-$1 billion AUM sized firms that we specialize in serving, the largest fund administrators in the US by market share don’t provide the level of specialized attention that such firms need to grow. Mega-firms may be inclined to devote more energy to their larger mega-clients.
This is why we started Socium, to give fund managers and their investors the level of attention they expect from their internal employees. We believe that 1+1=3 and that by partnering with Socium, our clients can leverage us to focus more on their core competencies and in most cases pay less. We have a keen focus on keeping LPs happy with our service levels so they are inclined to re-up into the next fund. We are an extension of the GP’s team, and we can move the way they move.
