Real assets are an essential element in a well-managed investment portfolio. From private commercial real estate to energy and infrastructure funds, real asset investments can serve as a source of returns above capital market strategies while offering significant diversification benefits.
Building a real asset portfolio is a process that requires multiple considerations in terms of planning, strategy, implementation, monitoring, and capitalizing on opportunities. Traditionally, many real asset private equity firms performed the administration in-house. However, as the reporting demands of both investors and regulators continue to grow, so too does the need for specialized knowledge, processes, and technology. Below we will discuss why choosing a fund administrator with specialized expertise servicing real asset funds is key to a smooth investor experience.
Fund structuring is as much of an art as it is a science. There are numerous factors to be considered when choosing a real asset fund structure. For example, the type of LPs and where they are located, the asset type, where assets are being acquired, how long assets will be held in the portfolio, and tax implications of specific assets, among other factors. It is important for fund managers to bear in mind that there is no ‘one size fits all’ approach. Identifying the most efficient fund structure to execute the investment strategy takes a team of experts with advanced know-how in real asset investments.
Choosing the right fund structure has major implications on firm operations and accounting teams. Different fund structures require different levels of technical skills and abilities to execute. Flow-through fund structures, international structures, and blockers carry specific attributes and benefits to servicing real assets, making it critical to have a fund administrator with extensive knowledge of the operational and accounting nuances of these types of investments from day one.
Investing in real assets can also pose distinct tax challenges. The introduction of tax-driven feeder funds, blockers, and other complicated fund structures introduces complexity unique to each structure and requires specialized expertise. Each fund structure requires specific timing of payments rooted in strong detail. Executing and paying taxes as required is challenging without the right people and robust accounting processes.
Your fund administrator should have experience dealing with these structures because the consequences of getting it wrong are significant and can trigger penalties for delinquent tax payments, not to mention foster investor concern.
Additionally, real asset fund structures carry various tax attributes on a go-forward basis that must be well understood and accounted for. An experienced team can look forward and identify how certain structures carry go-forward tax attributes while having a look-back perspective. The right experts can understand questions being asked by investors and tax professionals, adding value to a fund’s back-office.
Accuracy through reporting tools and top-tier technology is essential to maintain the highest level of fund administration services. However, the technology is only as valuable as the people using it. With more investors requiring customized portfolio statements, having tools with drill-down access and online dashboards to enable complex data management can be very valuable. Be sure you have the right people to manage this data and technology to support your real asset investment fund.
Choosing a fund administrator with experience working with real asset funds is critical to a smooth investor experience. They will provide the necessary support needed to manage your real asset investments, ensure payments are timely paid, and deliver investors the transparency they need. Additionally, a trusted fund administration partner serves as an extension of a firm’s back-office, offering expertise, processes, and systems that private equity fund managers can rely on.
