Hitch-free switch: Five ways to take the headache out of fund migration

Moving funds and switching fund administrators is far from the simple lift and shift that many might assume. But there is no reason to make it any harder or riskier than it needs to be. How can you as a fund manager or fund administrator make the move-over go smoothly?

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By David O’Brien, advisory director, PwC Channel Islands

UNTIL recently, switching administrators prior to the closure of a private-equity or other alternative-private-markets fund was rare. Now it’s increasingly common.

Costs, quality of service and the ability to meet new reporting demands are clearly critical factors in the decision to change administrators. The growing readiness to switch mid-stream also reflects the rapid growth and evolution within private markets. Fund managers want administrators who can help accelerate their digital transformation, ensure they have the capacity to expand and support their moves into new asset classes. They also want administrators who can help them meet stakeholders’ ever more exacting expectations on environmental, social and governance (ESG) criteria.

There are also local factors at play. For Jersey in particular, changes to the limited-partnership rules are encouraging a step-up in fund migration to the Island.

But while there may be valuable benefits in changing administrators, the complexities and risks of migration shouldn’t be underestimated. Our experience of working with both fund managers and administrators on planning and transition underlines just how many moving parts are involved:

Migration checklist:

Accounting

Data, reporting deliverables and accounting architecture set-up.

Accounting supporting documents and data validation of migrated historical data.

Admin

Investor data, statutory data and systems set-up.

Change in bank mandates and controllers, investor portals and other portals (eg tax portals, board intelligence etc).

Compliance/KYC

Investors and controllers take-on, compliance manual, investor risk ratings.

Legal and regulatory

Transition agreement (if applicable) and master service level agreement, offboarding fees negotiation and regulatory communications, application and approvals.

IT and systems

System configuration, data extraction, cleansing and formatting for system upload.

Communications

Communications to key stakeholders including investors, auditors, banks, insurers and contractual parties.

Data hurdles

The most common fault line is data. We see the data issues from both sides of the fence – working with fund managers/administrators on transition and as users of fund data in areas such as audit. Often, the data from one accounting system isn’t readable on another, requiring time-consuming, manual mapping and cleansing steps before uploading into a new system. More broadly is just how much data is involved given the rapid and continued increase in what is required to be captured and reported across accounting, regulatory and client-management systems.

No room for error

The other big challenge is that the migration needs to be part of business as usual from day one. Investors, regulators and investment-management teams within the business won’t accept any break in service or information supply. Any problems could damage the reputation of the new administrator and cloud the relationship thereafter. Equally, while incumbent administrators might think that once the mandate is lost this is somebody else’s problem, they too have both reputational and contractual obligations to help get this right. The transition can also provide useful experience when managing incoming mandates.

Smoothing the transition

What then does our experience tell us about how to manage the migration challenges and ensure a seamless transition? Five priorities stand out:

1. Make sure the plan is realistic

The starting point is preparation of a comprehensive project plan including key target dates, workstreams, milestones, dependencies and key performance indicators.

Plans should be subject to rigorous governance and challenge to ensure they are deliverable. This includes ensuring that milestones are accepted by all parties and that there are clear escalation mechanisms if plans fall behind.

2. Learn from others’ experiences

About three-quarters of the demands are common to all fund migrations and therefore core structures/solutions can be replicated. That leaves you to focus on the 25% that would need to be adapted or customised.

3. Harness tech developments

Technology is now available to ensure that data (eg investor, investment, statutory, etc) is transferrable and readable between systems. Effective use of technology can also help to reduce the workload and potential for human error.

4. Ensure accountability

In addition to a co-ordinating lead, it’s important to have a point person within both the incumbent and new manager, who is accountable for progress and empowered to escalate/resolve problems if they arise.

5. Bring your people with you

While data and systems are critical to success, it’s important not to lose sight of the human dimension of migration. From explaining the rationale for the switch to managing the impact on ways of working, this must be at the heart of planning and stakeholder communications.

Here to help

If you would like to know more about fund migration and how we can support you as a fund manager or fund administrator, please feel free to get in touch by or visit https://www.pwc.com/jg/en/services/advisory/our-team.html.

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