Due diligence of the administration function: key indicators for robust reporting

Robust reporting is the product of an effective administration function, whether you are the general partner requiring confirmation of key data or limited partner receiving periodic reports. Despite a report being presentable and received on time, it will be useless if the information it contains is inaccurate or incomplete. To pass the test, the reporting must be accurate, timely and accessible. Therefore, the due diligence process must focus on those aspects of the administration function that are critical to success in producing robust reporting.

There is no such thing as a singular, all encompassing organisational structure that fits the needs of private equity funds. If there were, we would see a move towards standardisation around this model, with modest changes to meet the needs of individual funds. Currently, the administration function of private equity funds is handled in-house, outsourced locally or outsourced to another jurisdiction. Whatever the arrangements chosen for a particular fund, there will be certain key issues that will determine whether or not the particular structure adopted will produce the desired result over its lifespan. This article reviews five key issues and the types of information required to complete the due diligence process: focus, organisational structure, continuity and key people, flexibility and communication.


Private equity fund administration is a specialist function. The people working on your private equity fund must have private equity fund administration as their only function. This applies equally to members in senior management of the business: if they have other areas of responsibility, their focus on your business will be less than you need. Why? Private equity is a dynamic business that has developed quickly as an asset class; as such, it needs management in the administration function to be responsive in order to adjust over the life of the fund and to reflect both changing needs and prevailing best practices. If this does not happen, you end up with an administration function that is stuck in a time warp, designed to fit the needs of yesteryear. This problem will be a negative to all concerned and will certainly be brought up during the next fundraising cycle.

Organisational structure

In order for the senior management of a private equity fund administrator to harness its experience and expertise and make its services useful for an individual fund, it is essential to have a flat management structure. This is the only structure that enables an efficient free flow of relevant information.

During the life of a fund, there can be changes in the economic conditions of the countries where investments are made, changes in government regulations (both regulatory and tax), changes in the LP’s expectations and changes in information technology. The efficient administrator will identify these changes early in the process, determine the potential impact on the fund and the administration, and open an early dialogue with the GP and LPs. In this way, amendments to the fund’s operations can be performed on a timely basis and at a lower cost. In contrast, a hierarchical structure will be slower internally in identifying the issues, will seek a “one size fits all” solution from internal discussions, and only then will commence a dialogue with the GP. The resultant process re-engineering will then be applied across the board, which will be slower, less flexible and carry a higher cost.

Continuity and key people

A typical private equity fund will have an average life of 12 years, comprised of the fund life of 10 years, plus one year at each end covering its formation and closure. It is therefore important to have continuity of staff so that the knowledge of why structures and processes were originally adopted is accessible. This information must be accessible both in the minds of individuals and documented on file; documentation alone will not suffice, as it can be subject to differences in interpretation or understanding that can have expensive consequences.

The due diligence process must review the administrator’s past record of staff turnover, as well as gain an understanding of its current position and what provisions have been made for the future, which applies equally to an in-house solution as it does to an outsourced solution. An in-house solution may at first sight appear to score well on this benchmark, but the due diligence review may highlight one or more single-person dependencies; the larger infrastructure of an outsourced solution will mitigate this risk.

Whatever solution is selected, it must ensure continuity of the administration function, regardless of vacation, sickness, IT failure or any combination thereof. Retention of staff is helpful but not a solution in its own right, as the people engaged in the administration function must also be appropriately motivated in order to ensure that all interests are aligned.


The operating systems and procedures must be flexible in order to meet the needs of differing GPs and LPs. Each fund is different and therefore needs bespoke administration and reporting. This requires that the administrator use IT systems that can be readily adapted to meet the needs of individual funds and GPs. Furthermore, as the geographic spread of funds, GPs, and LPs expands, so does the need for the administration function to operate in multiple jurisdictions and time zones.


With investors and GPs covering much of the globe, the communications medium that makes most sense is web-based reporting. Some investors prefer email, faxed or hard copy data, which will always be provided; however, the core fund data should always be stored on web-based systems because it is the cheapest, fastest, and most reliable way to communicate data between parties. For the GP, the ability to read fund data on a real-time basis can be critical. Web-based systems ensure that only one version of the truth is available, thus preventing incorrect data from being used for analysis.

The above has reviewed some of the key issues to be investigated during the due diligence process. In order to achieve robust reporting, the administration function must be on a sound footing to ensure continued success. In summary, the prime considerations in the due diligence process are:

• Focus on private equity administration – all of the key people must be focused exclusively on private equity administration and your fund.

• Flat structure – a flat management structure allows for more adaptability and therefore operations can be performed on a timelier basis.

• People – continuity and motivation of staff are essential for optimal performance.

• Flexibility of systems – systems, processes and people must move with the times and not be anchored down.

• Web-based reporting – fund data must be stored on secure web-based systems to improve communications.

Regardless of where your search takes you, there are many good private equity administration functions within the industry; therefore, there is no need to accept sub-standard outcomes.

Schroders Private Equity Services

Peter Everson, President

Tel: +1 441 298 7101

Email: peter.everson@bm.schroders.com

Nicola Walker, Managing Director

Tel: +44 (0) 1481 703 713

Email: nicola.walker@schroders.com