Letting Fund Managers Sleep at Night

Share

by fundcraft Founder & CEO, Julien De Mayer

Asset management is about raising capital and deploying it wisely to generate returns, which in turn, enables raising more capital. Everything in the middle is a colossal bureaucratic headache for which fundcraft provides a single pill for a fixed price, for the first time.

The bit in the middle, fund administration, is almost exclusively provided by a fragmented market of human centric service providers, whose offering is stitched together with a ragbag array of disconnected software products. There is a lot of software, but it sits behind the human services’ flawed revenue models and as a result, does not become the glue which gels to form an overall system for asset management.

 

I know the problem first-hand having been responsible for fund administration at Europe’s most well-known venture builder. The difficulty in syncing data between different sources with existing software solutions and providers is a constant, anxiety-inducing problem. But it is compounded by the absence of real-time information and the lack of self-service capabilities. I would literally lie awake at night not knowing the status of critical matters and with no means of checking for myself, and then have to wait for my service team to respond to my emails and calls.

fundcraft solves these challenges. fundcraft is built to let fund managers sleep at night while knowing their fund administrator has done the job.

 

A Single Source of Truth

fundcraft inverts the existing model and has a software-first offering, providing a comprehensive platform for asset management, which digitises all back-office services, connects to digital front-office ones via APIs, and provides a single source of truth centred on accounts for all actors in the ecosystem.

 

fundcraft offers more than a traditional platform. We provide a seamless integration of software, operators, and licenses for a fund to operate in compliance with local requirements in all relevant jurisdictions. By creating a core focused on accounting, we can expand and scale to serve the following users who can all operate the same shared repository:  Banks; Depositaries; Custodians; Law Firms; Notaries; Limited Partners; Distributors; Auditors; AIFMs; Portfolio Managers; Central Administration; External Valuers; Independent Directors; Compliance Service Providers.

If we take Limited Partners (LPs) as an example, we have developed a comprehensive module which will be deployed at the end of Q1 2024. This will provide branded portals to LPs with all the documentation linked to the fund’s data room, a 100% digital subscription process from the LP account creation until the LP is legally accepted to the fund, LP access to all important fund documents for investment valuations, updates, notices, and reports from the fund managers. Through seamless integration between back and front-office feature, fundcraft solves the industry’s problem in reverse by tackling the fundamental infrastructure issue before deploying the shiny front-end solution.

Moving Up the Stack

While there are new software platforms that have emerged in asset management, particularly centred on venture capital, fundcraft is designed from the outset to be able to move further up within the industry in terms of AUM, to serve all Private Assets’ classes. In addition, unlike competitors, rather than being a one-stop-shop of integrated features, we provide an infrastructure layer for best-of-breed third-party services and service providers. This allows for the use of preferred providers as well as the tools and facilitates to switch to new ones.

The best-of-breed, modularised architecture also creates a distribution advantage where the best providers self-emerge via fundcraft and act as referrals, creating synergy between all the best providers in the sector and self-reinforcing quality and efficiency.

Improved Asset Manager Performance

Solving the ‘bit in the middle,’ which is a headache for asset managers, helps improve fund performance by removing friction (aka cost and risk), and increasing focus and clarity. This increases overall performance by reducing the opportunity costs created by processes that impinge on General Partners’ core business activity. As such, it is a platform scale software opportunity tied to a very large market whose inventory is capital.

Asset servicing is already a bigger headache in Europe than elsewhere, due to a larger regulatory burden that is continuing to grow from this larger base. Unlike our North American competitors, we are starting in this market, because we deeply understand it, and we believe that expanding internationally is then easier. Luxembourg is a perfect springboard to tackle Europe markets due to its gold-plated regulation, putting fundcraft in a unique position to leverage “built for Luxembourg” in the rest of Europe.

Go-To-Market Timing

Despite a high level of M&A within fund administration, this has not resulted in market consolidation because traditionally high margins have attracted a constant stream of new providers such as existing financial services firms who offer it alongside services such as wealth management or legal advisory. In fact, in many cases it is compounding the issue as systems, processes and technologies are often not integrated.

This is changing, however, creating a unique go-to-market opportunity for fundcraft which overrides temporary, interest rate shock driven, retrenchment in venture capital. The opportunity is a result of a pincer movement on margins. Market fragmentation and resulting competition in fund administration puts pressure on prices. When this is combined with the complexities of serving a growing regulatory burden, it puts pressure on these traditionally high margins, which drives the need to restore them through efficiency gains which can only be achieved via software rather than people-based operations. fundcraft delivers this, but via a model which is structurally different and able to capture a significant share of the market.

 

Product Need

On the demand side, anyone familiar with the asset management industry will confirm that all GPs are dissatisfied by the services delivered by their fund service providers but few switch because of the perceived risks in doing so.

As a result, we are extremely focused on three areas: bullet proof migration and onboarding; simple, transparent pricing which aligns business model incentives between us and our clients, and lastly, a modular, everything-included architecture that obviates costly integration upselling. I am Belgian. We make decent food, and fundcraft is the dish of the day, not some complex menu of a la carte services.

 

1. Migration & Onboarding

fundcraft offers a fixed fee, modular infrastructure and as such, the focus is not on customisation or lengthy integrations.

We will migrate an existing fund or funds including all data and documentation, reports, accounts, and payment approval flows for all modules: TA, Accounting, PM, etc. Smooth transitions are ensured by running accounts in parallel for 3 months while operations are also checked from a legal, regulatory, and corporate housekeeping standpoint. During migration, the fixed fee is reduced by 50%.

For new funds, we charge an annual fee of EUR 40K (calculated monthly) until the deployed capital reaches a certain threshold. The deployment period typically changes with the fund’s strategy, but the key point is that our fees also decrease in line with the divestment period, following the lifecycle of the fund and aligning the interests of all parties involved.

2. Pricing

Traditional asset management services often have unpredictable and high fees that are not aligned with the value they provide; in most cases, they’re based on “time spent” in a similar approach to lawyers or accountants. We have moved away from this output-driven pricing to a value-based model. Our fixed fee of (15 bps at the highest tier) is applied to deployed capital by the fund (with a minimum of EUR 40K/year), aligning our interests with those of the asset managers.

3. Modular, All-inclusive Product

A digital platform with a single source of truth, providing accurate data across the six main back-office domains: transfer agency; investment management; accounting; compliance; corporate secretary; reporting.

Focus on raising and deploying rather than operations

fundcraft inverts the traditional, human-services based, fund administration business model to make it scalable. It integrates and puts technology at the forefront of all back-office operations and allows third party service providers and solutions within the funds’ ecosystems to all login to a single point of truth.

By centralising and automating the entire operational workflow, we are making the industry more efficient, transparent, and client centric. Our robust migration and onboarding teams, and transparent and simple, value-based pricing, create a compelling case for any asset manager to become a fundcraft customer to be able to focus solely on raising and deploying capital.

Get in touch with us today to find out how to get started (and back to sleeping at night)!

keyboard_arrow_up