In the 1980s and 90s, when hedge funds delivered outsized returns and surged in popularity, fund managers could set their fees as they saw fit. The 2/20 rule, 2% management fees, and 20% on performance ruled the day. This changed after the market collapse of 2008, when investors began demanding greater transparency into fund fees and expenses, and private funds became subject to stricter regulatory disclosure requirements. Limited Partners (LPs) moved into the driver’s seat, and fund managers were compelled to offer more flexible, investor-friendly terms.
In a recent webinar, SS&C Advent’s Matt Macomber and Sean Brown discussed the evolution from fairly standard fee agreements to today’s more complex, intricate, and often highly customized fee structures. In the current environment, management fees are lower, high-water marks are higher, and the “1 or 30” structure has caught on. Managers struggle to map out future “what if” scenarios while basing their calculations and forecasts on dynamic data changing over time. On top of all that, investors are increasingly negotiating bespoke fee schedules tied to their commitments to the fund, resulting in many side-letter agreements. On the private equity side, waterfall distribution methods entail incredibly complex calculations to parse return allocations among general and limited partners.
Meanwhile, the underlying fund structures themselves are becoming increasingly intricate. The proliferation of hybrid closed/open-end funds, evergreen funds, and other creative variations compound the complexity of fee calculations.
Mitigating the Risk of Errors
Calculating fees may be “just math,” as Matt points out, but given the sheer volume of data involved and the reporting frequency, the operational risks are high if a firm still relies on spreadsheets. And errors can sour hard-won investor relationships.
So, how do you address compensation issues in due diligence? How do you demonstrate that you can accurately meet individual demands and account for many different fee arrangements? Fortunately, the webinar has some answers to these questions.
Streamlining Investor Fee Calculations
SS&C Advent’s Geneva® team is diligently working on solutions. With Geneva Investor Accounting, firms can seamlessly:
- Account for side letters within each investor's profile
- Natively supports both American and European-style waterfall calculation methodologies
- Configure custom reports, whether at regular intervals or to meet ad hoc requests
There is a need for a streamlined fee calculation workflow that is automated, scalable, auditable, and delivers reliable results. With Investor Fee Builder – an embedded calculation engine in Geneva, users can design custom fee structures, automate calculations, and integrate them with their existing fund processing workflows in Geneva.
Even if you rely on your fund administrator for investor fee calculations, Investor Fee Builder is a valuable shadow accounting tool to give you peace of mind that investors are being charged accurately and you are being compensated fairly. You’ll be able to proof calculations and show clients how you have arrived at the fees with reliable precision.
Watch the full webinar for all the details on Investor Fee Builder, the rollout plan, and how it can make a difference for your firm in the era of bespoke fee calculations.
To learn more about SS&C Geneva®, an award-winning portfolio and investor accounting platform that fully supports your complex, operational workflows, contact us or request a demo.
