Here’s how to choose the partners important for building a strong and well-oiled long-term fund.

To ensure stability, security, and crisp reporting inside the dynamic world of debt funds, a smart fund manager will, in most cases, court key third-party relationships to build a rock-solid operations platform. These third-party vendors play pivotal support roles in various aspects of fund operations, from custodianship to technology platforms. They can also enhance the performance and reputation of any fund, REIT, or ongoing capital raise. Remember, seasoned investors look not only to the C -suite team of the fund but also to the key partnerships that ensure quality operations and honest reporting.

Assessing Your Needs

A fund, new or old, cannot begin to assemble a team of key players until they know where their needs are. From day one, therefore, a solid executive team must begin identifying the areas where third-party vendors will be involved (e.g., fund administration, compliance, legal, and technology). So many times, fund managers experience “we-didn’t-see-that-as-a-need” moments months after they begin operations, with weak spots bubbling to the surface only once a problem arises.

The long-haul players with strong teams are a clear example of “how it’s done.” Study them, and mirror their operations. If you and members of your team aren’t skilled in certain areas, then leave those areas to the third-party experts. Make sure the third-party vendors you select are not only skilled but also align with your culture and vision.

Reputation Is Everything

It can’t be said enough: Surround yourself with winners.

The private money debt fund space is small. Conducting business responsibly, particularly in real estate investments, has an impact on your long-term reputation.

Raising and deploying capital is more difficult now than even four years ago, so your teammates matter now more than ever. Some companies in the industry have been working together for decades. For this reason, they are the key names investors seek out to develop relationships with.

How to Choose Key Partners

OK, you understand you can’t do it all yourself and you’ve assessed where your gaps may be. Now let’s take a look at some common relationships fund managers seek from third-party vendors—and what you should look for with each one.

Regulatory and Compliance. A fund must have top-line legal behind it. Major law firms specialize in this space; stick with them. A person going through a divorce would not hire a slip-and-fall attorney; similarly, a fund manager should never hire an attorney who specializes in watercraft and boating issues. They are all attorneys, but they are not all the same.

Many times, you will see start-up funds and REITS use a firm that doesn’t have a solid and long-term presence in our space. Although those law firms may excel in their specialties, if their expertise is not in funds and REITS, they may miss key items that create liability for your fund. Stick with experts in this field!

Data security and back-end protection. Fund managers must have a reliable and trusted third-party vendor who can provide data security and back-end protection for your fund. They should have systems that safeguard investor distribution and draw requests and protect against identity theft of your investors and your business. Fortunately, our industry has several rock-solid players now who are true experts, have a quality reputation, and stand by their platforms.

Again, a technology relationship of this type is a must have for any capital raise because theft, scams, and fraud are at an all-time high. Artificial intelligence has rewritten the playbook for bad actors. If a debt fund does not have this key player on the team roster, it will be concerning for both investors and borrowers.

Accounting partnerships. Making an efficient monthly or quarterly distribution is the hallmark of fund performance. So too are the end-of-year accounting requirements, K-1 filings, reporting, and up-to-date monthly dashboards. Investors will want to know who is keeping the books and how they can “get a look” at them.”

Accounting is the baseline to growth, performance, and confidence in a company’s effort to “do good business.” It goes without saying: When it comes to choosing an accounting partner, choose wisely, choose an expert, and choose trusted experience.

Marketing partnerships. This relationship is big because it serves two masters.

The first is what your fund looks like to the outside world. As we all know, investors will not engage if they don’t understand. But they also won’t work with you if you give the impression you are “fast and loose” or inauthentic.

So many times, marketing companies think that because they do “marketing,” they can do “financial marketing.” Just as with your attorney and accounting partnerships, one size does not fit all. A marketing company that specializes in energy drinks and pickleball is probably not the best choice if they have never worked in the fund space. Sure, they can get eyeballs on your company, but will they be able to provide the best quality impression of your fund and your company?

The second master involves legal and regulatory compliance. If you’re not registered to target accredited investors (B Election), it’s never a good idea to use digital media to broadcast an open invitation to all investors across the U.S. with an “invest-today-and-get-a-top-10-list-of-hot-markets” approach. This kind of marketing can cause significant reputational problems and lead to serious regulatory issues for your company.

Banking partnerships. Many banks are not set up for the way debt funds and REITS operate. Don’t assume that just because a bank is well known in the community or nationally they are familiar with debt fund or REIT operations. Some banks have a hard time working with large amounts of deposits, fundings, draw requests, account transfers, etc.

At the very least, interview several banks and get suggestions from your colleagues in the space. There is nothing worse than talking a bank into operating in our arena if funds and REITS aren’t their forte. Your banking relationship can make or break your success when it comes to closing your borrowers’ loans and also raising capital and paying distributions.

Scaleability

As you build your outside team, be sure to ask your inside team, “Can the partners we’re considering scale with us?” If they can’t, then look elsewhere.

A third-party vendor may have expertise and a great reputation; however, if their ability to scale does not align with your growth goals, then you’ll reach a point where they will not be able to serve you well.