Emerging Manager Services

An emerging manager is a new manager or smaller investment entity, that is typically launching its first alternative investment vehicle. While exact definitions vary by asset class and investor type, emerging managers are generally identified by their current efforts in the early stages of fund development and having rather limited access to assets under management (AUM), particularly at the institutional level. 

Emerging fund managers are generally required to have an audit if they are registered with the SEC, if their Limited Partnership Agreement or Private Placement Memorandum mandates it, or to attract institutional investors. Although many smaller, non-registered funds can technically bypass an annual audit, doing so often limits their growth and fundraising potential. 

Fund administration and fund audit are separate functions but interconnected within the fund landscape. Fund administration is the ongoing management of a fund's daily back-office operations, such as accounting, reporting and investor relations. A fund audit is an independent examination performed by a licensed professional to verify the financial statements accurately reflect the true financial position. 

A pass-through entity is a business structure, such as a sole proprietorship, partnership, LLC or S corp, that does not pay corporate-level income tax. Instead, business profits will "pass through" to the owners. 

A Schedule K-1 is a federal tax document used by "pass-through" entities to report each investor’s share of the entity's income, deductions and credits. Yes, it is necessary and mandatory to supply a Schedule K-1 to every investor that holds an interest in the entity. The fund must also file copies of every issued K-1 with the IRS. 

Engaging third-party service providers to help navigate the increasing regulatory complexities and investor demands of the alternatives market is increasingly common. Outsourcing key services gives fund managers operational efficiency and scalability. Fund accounting, tax reporting, financial audit and investor services are the most common operations moved out of the back office. 

Simply put, yes. A proven track record and industry-specific knowledge is very important when choosing outsourced service providers. Providers should understand niche compliance requirements, specialized trading applications, and unique risks of different asset classes. An experienced provider may also contribute additional insights toward improving fund operations or methods to minimize risk.