The Value of High-Quality Fund Administration

Why the Cheapest Provider Is Rarely the Least Expensive

The market for outsourced fund administration is growing quickly, with global spend projected to rise from $13.4 billion in 2025 to $25.5 billion by 2034.1 Real estate and private equity still lag hedge funds in adopting it, but the trend is clear: More private equity and alternative asset managers will outsource significant components of their back office in the coming years.

Every real estate and private equity fund manager making the decision to outsource their fund administration believes they are acting as a responsible fiduciary by choosing the lowest-cost provider; driving value for investors at the lowest reasonable cost is, after all, the job. That reasoning is sound on its face but wrong in practice. The cheapest provider often costs the most, just later, and somewhere else on the ledger: a qualified audit opinion that surfaces days before a loan closing, a late K-1 resulting in an angry limited partner (“LP”) who decides to skip the next fund, or a missed payment that results in fines and interest.

The Downside of Choosing Solely Based on Pricing

In a 2021 report by FTI Consulting, Inc. and Wealth Management Real Estate, pricing was the top selection criterion among fund managers who had not yet outsourced.2 However, among those who had outsourced previously, client service, expertise and technology all ranked higher. Managers who have been through the process recognize the importance of understanding not only the stated provider cost, but as importantly, also the hidden costs. Those include:

  • Poor audit quality. A clean audit is foundational. A qualified opinion, deficiency or material weakness finding can trigger lender covenant reviews, delay capital calls and distributions and invite scrutiny from investors and rating agencies. An effective third-party administrator can reduce operational errors, thereby lowering the odds of an audit finding.
  • Expensive rework. Fixing accounting and reporting errors adds unplanned cost and disruption; reissuing investor statements, amending K-1s, or reopening a closed reporting period all take time and money that was never budgeted. The later an error surfaces, especially if flagged by an LP, the more expensive it is to fix, and incorrect reporting to sophisticated investors erodes confidence.
  • Disruptive capacity issues. A provider that cannot flex with changing assets under management struggles with burnout, attrition, and staffing gaps, pulling senior management’s attention away from strategic priorities. A team stretched that thin has little bench strength if a controller leaves mid-close or a new fund launch coincides with a wave of redemptions.
  • Potential vulnerabilities. A high-quality provider brings robust controls, cybersecurity and compliance built in. The alternative is hiring expensive in-house experts or going without, a risky bet given that fund administrators are frequent targets aimed at redirecting capital calls and distributions.
  • Investor due diligence risk. LPs increasingly perform operational due diligence on a manager’s service providers before committing capital. A weak or unknown provider can itself become a red flag in fundraising, not just a back-office inconvenience.
  • Missed deadlines. Commodity providers, often stretched thin or less experienced, may be more prone to late K-1s, late investor statements or missed filing windows. A late K-1 forces LPs to file tax extensions, a black mark that follows a manager into the next fundraise.
  • No proactive advisory. A low-cost provider is typically a transaction processor. Managers lose the structuring advice, tax-efficiency suggestions and extensive experience that catch a problem before an LP does. It’s a quiet cost, but a real one.

The Value of Quality Service, Industry Experience and Specialized Expertise

Not every fund administrator is the same, and the differences show up exactly when a manager needs them least, which begs the question: What should a CFO look for when selecting a fund administration partner?

  • Fundraising credibility. LPs conducting operational due diligence aren’t checking a box for whether a manager uses a third-party administrator; they’re evaluating who that administrator is. A recognized, technically deep partner strengthens a fundraise: The administrator becomes part of the pitch, not just the back office.
  • Independent, unbiased advisor. Select a partner with no conflicts: one that doesn’t also perform financial statement audits, run an ancillary custody business or sell proprietary fund products alongside the accounting work. There are certainly services that can be accretive, but many administrators who are owned by or affiliated with a bank, custodian or asset manager can have real or perceived conflicts of interest.
  • Extensive technical accounting knowledge. Choose a partner with specialists available for when something gets complicated: a waterfall calculation, a blocker entity structure or an SEC comment letter, rather than one that sends you looking for a second provider when the real work starts.
  • Security, controls and technology. As a fiduciary, you cannot outsource your risk. Select a provider with strong segregation of duties, access controls and cybersecurity protocols to protect against mistakes and fraud, because their mistake becomes yours. That same discipline tends to extend to technology: Look for a provider that can demonstrate that it continually monitors and updates its systems and processes, whether manual or agentic.

Choosing a qualified, expert provider is a question of value. Paying less to a commodity provider is rarely the savings it appears to be. Contact Josh Herrenkohl at josh.herrenkohl@fticonsulting.com to learn more about FTI Consulting’s fund and investment administration, accounting and financial reporting, and on-call technical accounting advisory services.

Footnotes:

1: Sharma, Raksha, “Fund Administration Services Market Size, Share and Forecast Report 2025 to 2034”, Dataintelo (Sept. 2025, Updated Sept. 28, 2026).

2: Wealth Management Real Estate and FTI Consulting, “Outsourcing Gains Traction with Real Estate Investment Managers” (Jun. 18, 2021).

 

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

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Published

October 14, 2026

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Josh Herrenkohl

Senior Managing Director

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