Bridger Pennington explains what third-party fund administrators do and when you need one. TPAs handle capital calls, investor statements, NAV calculations, and compliance, costing $30-50k yearly. He ran two small funds without one, switched to TPAs for larger funds, and recommends Strata, Cornerstone, or NAV Consulting depending on your needs.
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Alright people, welcome back. In this video, we're going to talk about are third-party admins necessary for your fund? We're going to talk about what a third-party admin is, what do they do, who are some good ones, some that I suggest or recommend, and do you need them for your fund? Now to give you a little overview, a little history, third-party admins, essentially just a brief overview, They are, like in the name, a third party that checks and verifies everything that you're doing in your fund. They help you with member statements. They help you issue capital calls. They help you do distributions. So anytime money is flowing from your fund to investors or from your investors to the fund, they make sure that it's the right percentages, that everyone is done with the right dollar amount. They actually help you send out those statements, those notices, make sure it's all compliant. It's a really great thing to have. To again, make sure you're not lying. The history of third-party admins is very interesting. So before Bernie Madoff, I believe it was around 10% of all funds used a third-party admin, which is a very pretty small amount, right? Most people just trusted that they were running the books right. After Bernie Madoff, over 90% of funds use third-party admins. It was this major shift between investor and firm relations and trust. And they said, you know what, we trust you guys, but so did about $60 billion with Bernie Madoff. We want to verify what's going on. And so there was this huge transition and emergence of third-party admins on Wall Street with investment funds to ensure that another Bernie Madoff would not happen. My first 2 funds, I did not use a third-party admin. I was a, I was a decently small fund. We had less than 20 investors. And so it was relatively easy to do Capital statements and calls and all that kind of stuff. And we weren't moving capital that often. We were an open-ended fund. We had certain disclosures we'd make, and it was all pretty easy. Now, on my next 2 funds that I'm opening right now, we are 100% definitely using third-party admins. There are too many moving parts. We're raising capital from hundreds, if not a few thousand investors. We need third-party admins to check and make sure everything is done correctly. And a lot of our investors It gives them that last little bit of insurance that says, okay, these guys, I trust them, but I also trust and I verify because they have a great admin with them. So let's talk about cost of a third-party admin. Third-party admins can vary drastically depending on their performance, what they do, what they help you with. It'll also vary based on your fund type. It's a lot easier for a fund admin to verify and help a private equity group that owns 5 companies versus a hedge fund that day trades hundreds of transactions. Because they got to verify and check every transaction that goes through versus, you know, this private equity firm that owns 5 companies and things relatively don't move that often. So cost will vary drastically based on that. Now I've talked to a handful of different admins. I've interviewed them. I've tried to see which ones are good and bad. Some admins do not want to work with you unless you have a certain amount of scale. One group I talked to, they said, unless you're $30 million, we really don't want to work with you. We just, we have too much scale. It's too much cost. And they were about $30,000 to $50,000 a year to hire them as a third-party admin. And a side note, that fee can come out of the fund as a fund expense. Now I found a few other firms. Now that firm was called Strata. We have a video on our backend course about them that gives— you guys get a discount, all that kind of stuff in the backend course with them if you want to use them. A few other firms that work on the smaller emerging fund manager level. One is Cornerstone. That's kind of a famous one a lot of people know about. And honestly, I haven't had a great experience working with them. I just didn't feel like the customer service was there. They had a lot of clients and they really didn't help that great with clients. But again, do your own research if you'd like. One though that I found that has been very good for emerging managers is NAV Consulting. These guys I've worked with, I'm actually using them for my funds. I have seen a high level of customer service and customer satisfaction, and they seem like they are on the ball with everything. They work with over 3,000 funds. They've done this for 30 years, have a huge team. I've really liked working with them so far. Now NAV specifically for our fund, they have software that can plug in to our backend to track every single trade that we make inside of our fund. A lot of these third-party admins have softwares and compliance checks to help you on all of the transactions or trades that happen inside of your fund, which again makes it very easy for you to make member statements and reports for your investors. One of the biggest things any of these third parties do is help you strike NAV, your net asset value of your fund. Depending on your fund type, you will want to strike NAV Multiple times a year, if not multiple times a month. So what that means in a very common scenario is we will strike NAV, for an example, every quarter. So at the quarter mark, our fund will come together and strike our net asset value of the fund on that date. So we come up, we did some investing, we're doing whatever. Q1 comes. Okay, we strike what's called NAV. We value all of the assets that we hold and control. What does that mean on paper to investors? Where are we at? Are we up? Are we down? Are we in the middle? A third-party admin can help you strike NAV. Now, it is harder to do this inside of a real estate fund or private equity fund or a venture capital fund because, you know, what is the value of that company on this date versus 4 months ago? So I typically see those types of funds maybe doing it twice a year. In a hedge fund, you can strike NAV daily if you'd like. So every single day, your third-party admin can strike, hey, this was our daily NAV today. All of our trading, whatever we're doing, we're up today or today we're down. And every quarter, every month, you can report to investors, here was the NAV on this day. You invested $100,000 with us. We struck NAV and now we're at $130,000. Regardless of what fund type you're in, before you do a distribution to yourself and investors, you will want to strike NAV. You will want to say, this is what we've seen, this is how much money we've made so far, and we are now going to distribute, uh, 80% of those profits we've made are going to be distributed through our waterfall structure between investors and the general partner or management company. Some funds do distributions every month, some funds do every quarter, some twice a year, some once a year. You can decide that inside of your But again, a third-party admin helps you calculate all those numbers, verify that's done correctly, verify you're not running a Bernie Madoff Ponzi scheme with billions of dollars. Okay, so hopefully that helps. We'll put some of those links below to a few admins that I've worked with and seen that work well. And let me know if you guys have any questions. See you next video. Bye. Bye.
