March 28, 2025 - Emerging managers face critical challenges when selecting service providers: balancing quality, cost, and attention. The wrong choice can lead to delays, inefficiencies, compliance risks, and investor concerns.

Too often, managers make one of two mistakes:

1. Choosing the most economical providers – leading to subpar service, errors, and reputational risk.
2. Selecting top-tier firms that cater to billion-dollar funds – paying premium fees, but receiving minimal attention because they are too small to be a priority.

The key is to find fund administrators, legal counsel, IT providers, compliance teams, audit and tax advisors, and other partners who align with your size, understand your growth trajectory, and will prioritize your business.

Here’s how to make the right choice:

1. Choose advisors who will prioritize your firm

• Avoid large firms that primarily serve institutional clients, so you don’t end up as a low-priority account with a junior-level B-team supporting your account.
• Look for firms that specialize in emerging managers and view your growth as a long-term opportunity.
• Ask about their client mix. If most of their clients are significantly larger, you may struggle to get the attention you need.

2. Fund administration: accuracy, efficiency, and scalability matter

• A good fund admin is not just a back-office function – it’s a key driver of operational success.
• Ensure they have experience working with firms at your AUM level and can scale as you grow.
• Technology and reporting capabilities are critical as investors expect transparency, automation, and seamless integration.
• Service quality matters more than price – cheap fund admins can make costly mistakes that lead to significant delays and hurt investor trust.

3. Legal and compliance: more than just checking a box

• Regulatory missteps can destroy a firm before it even takes off. Choose legal and compliance teams that are proactive, not reactive.
• Large law firms can be expensive and may not prioritize a small, emerging fund. Find a firm that has deep experience that understands the common pitfalls and challenges faced by firms at your stage.
• Your compliance provider should be hands-on and accessible, ensuring you meet SEC requirements and investor expectations.
• As ESG, cybersecurity, and AML/KYC compliance are growing concerns, work with a team that understands the evolving regulatory landscape.

4. IT and cybersecurity: a critical investment, not an afterthought

• Emerging managers are prime targets for cyber threats. Regulators and investors expect strong IT security, even at smaller firms.
• Don’t choose generic IT firms. Instead, work with IT providers that specialize in asset management.
• Ensure your systems are scalable and integrate well with your fund admin and compliance providers.
• Cheap IT solutions can create security vulnerabilities. A breach can be far more expensive than investing in the right infrastructure from the start.

5. Audit and tax: expertise over brand name

• A well-respected audit and tax provider enhances investor confidence and ensures financial reporting accuracy.
• Large firms may not prioritize smaller funds. Find a team that values your business, understands your business, and provides responsive service.
• Tax structuring is complex for funds. Choose a provider that understands the industry, nuances of fund taxation, and investor reporting.
• Don’t wait until year-end. Good audit and tax teams will provide guidance throughout the year, not only when filings are due.

6. Balance cost and value: the cheapest option can be the most expensive mistake

• Cheap service providers often lack depth, expertise, and reliability, leading to costly errors and delays.
• Big names come with big fees, but not always the best service. Large firms prioritize their largest clients, and smaller managers often get less attention.
• The right provider is an investment, not an expense. Strong operational infrastructure gives investors’ confidence and supports long-term success.
• Negotiate smartly. Look for flexible fee structures that allow for growth, but don’t compromise on quality to save a few dollars.

7. Build long-term relationships with strategic advisors

• Your service providers should be more than vendors. They should be strategic allies who help position your firm for success.
• Establish regular check-ins to ensure they continue to meet your evolving needs.
• Switching providers can be disruptive. Choose firms that can support you not only today, but as you scale.
• References matter. Speak with other emerging managers who work with the provider to gauge their experience.

The right infrastructure builds a stronger firm

Emerging managers must think beyond cost and prestige when selecting service providers. The goal is to find firms that match your stage, understand your growth path, and will give you the priority and service level you need.

Cheap providers can create costly mistakes. Large firms can overlook small clients. The best advisors are those who see your potential, take you seriously, and grow with you.

Invest in the right relationships from the start, and you’ll build a firm that is operationally strong, investor-ready, and positioned for long-term success.

For more information, contact Deepak Nair at dnair@citrincooperman.com.