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Fund Administration: When, Why, and Costs

May 13, 2024

Shaye Wali

Real estate private lending is poised for significant growth in 2024. As super conservative strategies of big banks continue, there are plenty of opportunities for private lenders to fill this gap in capital. 

But real estate lenders seizing this moment will face inevitable growing pains, as growth brings complexity and new capacity constraints. Turning to operational partners like fund administrators will be critical to manage their funds and records accurately and efficiently during this period of growth. 

Baseline’s CEO Shaye Wali had a conversation about the critical role of fund administrators with Michael Von Bevern, Co-Founder of Socium, LLC. Michael is an entrepreneurial leader with over 26 years of financial services experience in trading, operations and fund administration.

What does a fund administrator do?

Fund administration in real estate private lending covers all back-office duties. Fund administrators handle the accounting, investor communications, financial reporting, capital calls, and many other functions to run the books of your fund.  

Outsourcing this body of work to an expert fund administrator is not only helpful to you and your team, but it helps provide a level of external validation to your investors. 

In this clip, Michael Von Bevern explains the many hats a fund administrator wears, and why investors like to see fund administrators involved:

When should a private real estate lender consider hiring a fund administrator?

Lenders should consider hiring a fund administrator when growth is on their mind. If you’re  ready to focus on business development activities, a fund administrator can be a trusted partner that takes the accounting tasks off your plate. One specific point Michael considers a good time to add a fund administrator is when you want to grow your bench of investors beyond your known contacts. When you’re looking for funding beyond people who know you personally, having an expert administrator on your fund goes a long way. 

Michael talks more about that tipping point here:

How does technology support a fund administrator? 

There’s significant room for the role of technology in private lending to grow. The industry hasn’t yet undergone a digital transformation, so early adopters of technology are seeing efficiency gains. While spreadsheets may do the job ‘well enough” for a small portfolio, a growth-oriented real estate private lending business will struggle to run solely on quickbooks or spreadsheets. 

Michael talks about the important role enterprise level software can play in driving efficiency, identifying and reconciling issues, and streamlining collaboration between the fund manager and the fund administrator:

How much does a fund administrator cost or how do they structure fees? 

The cost of a private real estate fund administrator can vary greatly and is often reflective of the size, growth and performance of the fund itself. Typically, fund administrators charge based on a combination of these three types of fees: 

  • Flat Fees: fixed charges for specific services or for overall administration. They might include setup fees, annual maintenance fees, or fees for specific reporting services. 
  • Asset-Based Fees: calculated as a percentage of the fund's total assets under management, which incentivize the administrator to support its expansion.  
  • Performance-Based Fees: tied to the fund's performance (i.e. a percentage of profits) to incentivize the administrator to support its successful performance.

Fund administrators play a multifaceted role in managing the back-office operations of real estate funds. Their expertise not only ensures accurate and efficient accounting but also provides external validation to investors. For private real estate lenders poised for growth, hiring a fund administrator equipped with both expertise and technological resources can be instrumental in achieving sustained growth and success.

Want to see more videos like these? Check out our video interview series "Private Lender Perspectives."

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