Digitalisation of Fund Administration: A Customer’s Perspective

Digitalisation of fund administration is often framed as innovation. From a customer’s perspective, it is primarily about risk, transparency, and control. In this article, Valeria Hegnauer, General Counsel for VSP shares her thoughts.

For an industry that manages increasingly complex, global investment strategies, fund administration remains surprisingly manual. From a customer’s perspective - both as a buyer of fund administration services and as a legal and operational steward - this is not merely an observation. It is a structural reality that shapes cost, risk, and ultimately trust.

Private market funds have grown significantly in scale, sophistication, and regulatory scrutiny. Yet many of the operational foundations supporting them still rely on processes that have changed little over the past twenty years: spreadsheets exchanged by email, reconciliations performed offline, static PDF reports, and fragmented systems that require manual oversight to function reliably.

This is not a criticism of individual administrators. Rather, it reflects how the industry evolved, incrementally, conservatively, and under intense regulatory pressure. But it does raise a critical question: how much of today’s operational complexity is inherent to private markets, and how much is simply the result of legacy infrastructure?

What “Analog” Still Means in Practice

From the outside, fund administration appears data-driven. In reality, much of that data remains unstructured, manually transferred, and reconciled across disconnected systems.

Common examples include:

• Bank connectivity and cash monitoring: Many administrators still rely on daily or weekly bank statements downloaded manually and reconciled against accounting systems by hand, rather than using secure bank APIs and automated cash reconciliations.

• Reconciliations: Position, cash, and NAV reconciliations are often spreadsheet-based, with exception handling dependent on human review rather than rule-based workflows.

• Investor onboarding and KYC: Despite regulatory digitisation elsewhere in financial services, onboarding frequently involves PDF forms, email exchanges, and manual data re-entry across compliance and accounting systems.

• Reporting: Investor reports are commonly generated through a combination of accounting exports, spreadsheet adjustments, and manual formatting, creating long reporting cycles and operational dependency on key individuals.

• Audit and compliance trails: Documentation often exists across emails, shared drives, and versioned spreadsheets rather than within a single, auditable system of record.

For fund managers, this translates into slower reporting, limited real-time visibility, and operational risk. For investors, it can mean reduced transparency and delayed access to information, this is particularly challenging in periods of market stress.

What is Actually Changing

Digitalisation in fund administration is often discussed in abstract terms. From a customer’s perspective, what matters is not the label, but the concrete outcomes.

The most substantive changes observed among newer, technology-first administrators include:

• Direct system-to-system connectivity: Automated links to banking partners, custodians, and portfolio data sources, reducing manual data handling.

• Automated reconciliations: Rules-based reconciliation engines that surface exceptions rather than requiring full manual processing.

• Single data models: Accounting, investor records, and compliance data maintained within a unified platform rather than across loosely connected tools.

• Structured reporting pipelines: Reports generated directly from validated data sources, shortening reporting timelines and reducing human error.

• Embedded compliance controls: Regulatory checks and audit logs built into workflows instead of applied retrospectively.

These developments do not eliminate complexity, but they do change where human judgment is applied - from routine data handling to oversight, exception management, and interpretation.

Why Adoption Is Not Automatic

Despite clear operational benefits, adoption of digital-native fund administration is not frictionless. Several structural factors continue to slow change.

1. A sticky industry with high switching costs Fund administration is deeply embedded in a fund’s operational and governance framework. For limited partners, a change of administrator can be viewed as a due-diligence event, prompting additional scrutiny. As a result, general partners often weigh continuity and perceived stability as heavily as efficiency gains.

2. Regulation as both constraint and moat The fund administration industry is heavily regulated across jurisdictions. This unquestionably slows the entry of new players and the pace of innovation. At the same time, for those firms that succeed in meeting regulatory and audit standards, regulation becomes a barrier to entry for competitors and a source of long-term credibility.

3. Perceived risk of newer providers General partners are acutely aware that selecting a newer administrator may invite deeper diligence from investors, auditors, and regulators alike. Even when technology is demonstrably stronger, the burden of proof is often higher for firms without decades-long track records.

These dynamics explain why digitalisation in fund administration is evolutionary rather than disruptive in the classic sense.

A More Realistic View of the Future

The future of fund administration is not a sudden replacement of incumbents, nor is it a purely generational shift. It is a gradual rebalancing of expectations: faster reporting, better data access, stronger controls, and clearer auditability.

From a customer perspective, digitalisation is not about novelty or user experience alone. It is about reducing operational risk, improving transparency, and aligning administrative infrastructure with the realities of modern private markets.

Over time, digital workflows will become standard rather than differentiating. The question for fund managers and administrators alike is not whether this shift will happen, but how deliberately, and how responsibly, it will be implemented.