Understanding Fund Administration for SPVs: Fees and Expenses

A fund administrator is an independent third-party platform that provides essential services for SPV management and formation. These services include:

• Reporting and Audits: Ensuring accurate financial reporting and compliance with regulations.
• Dedicated Bank Account: Managing a secure account for wiring funds.
• Tax Reports: Preparing necessary tax documentation for investors.
• Document Verification: Ensuring all provided documents are accurate and compliant.
• KYC Compliance: Conducting Know Your Customer (KYC) checks to verify investor identities.
• Payment Confirmation: Confirming all payments received and sent, ensuring transparency.

Fund administrator guarantee that SPV's general partner do not access your funds, ensuring that money is sent to its intended destinations. Additionally, fund administrator platforms save significant time and money by handling all necessary accounting tasks.

Who bears Platform's Admin Costs

Many investors are unaware of the costs associated with maintaining Special Purpose Vehicles (SPVs) charged by its fund administrator platform. The lifetime cost of an SPV ranges from $4,000 to $9,000 and more. Despite the significant workload involved, GPs often earn little until they receive carried interest. As a result, often, GPs do not cover administrative fees associated with the SPV and fund administration; these costs are distributed equally among investors. But some GPs still cover admin costs themselves.

GP's Fees: Access Fees, Management Fees, and Carry

GP's fees can vary based on the type of investment vehicle and agreements between investors and GPs. Generally, there are two main fee models:

Access Fee Model:

• Investors pay only an access fee to participate in the investment.
• This fee is typically a one-time charge, often a percentage of the committed capital.
• No ongoing management fees or carried interest are charged. It's also called 0/0 structure

Traditional Management Fee and Carry Model:

• Investors pay an annual management fee (usually a percentage of committed or invested capital, often 2%). An annual management fee can be capped at 3 to 5 years.
• Carried interest (carry, often 20%) is also charged, which is a share of profits above a certain threshold (hurdle rate).

Conclusion

Understanding the role of fund administrators and their associated costs is crucial for investors in navigating the complexities of investing via SPVs. By recognizing the services provided and the rationale behind fee structures, investors can make informed decisions about their investments in SPVs.