10 Ways to Attract Institutional Investors
Institutional investors demand high standards when selecting fund administrators and service providers. Their process involves more than ticking boxes. It focuses on risk, transparency, and alignment. At Pinnacle Fund Services, we support clients through institutional investor due diligence on a regular basis. This gives us deep insight into what investors want and how to meet those expectations. Our goal is to help fund managers understand how to prepare to attract institutional investors.
In this post, we explain how institutional investors evaluate administrators like us. We cover the key areas of focus and the questions they often ask. Here are the ten areas institutional investors typically evaluate:
- Governance and ownership
- Regulatory oversight and licensing
- Internal controls and SOC reports
- Technology and data security
- People and expertise
- Service model and responsiveness
- Fees and contract terms
- Experience with institutional clients
- Transparency and communication
- Controls over cash and fund payments
1. Governance and Ownership
Institutional investors always begin with governance. They want to know who owns and manages the fund administrator. Independence is key. Investors look for administrators who are not conflicted by affiliations with prime brokers or fund managers.
They ask:
– Is the administrator privately owned or part of a larger group?
– Who are the decision-makers?
– How does the firm ensure independence?
They want clear separation between control and oversight. At Pinnacle, we often help clients explain our ownership structure and conflict mitigation practices to their investors.
2. Regulatory Oversight and Licensing
Investors expect service providers to operate within a strong regulatory framework. They look for evidence of proper licensing, especially in offshore jurisdictions. Compliance with local laws is not enough—they expect global standards.
They ask:
– Is the administrator licensed or registered with a financial authority?
– What jurisdictions does the firm operate in?
– Are anti-money laundering controls robust?
Institutional investor due diligence always includes a review of compliance. They want assurance that the administrator will protect both the manager and the fund from risk.
3. Internal Controls and SOC Reports
Strong internal controls signal a mature and stable operation. Institutional investors pay close attention to these controls. One key document they look for is the SOC 1 Type II report.
This report confirms the effectiveness of the administrator’s controls over financial reporting. Investors also want to know if the firm has independent testing of its operations.
They ask:
– Does the administrator have a current SOC 1 Type II report?
– What controls are in place around NAV calculation?
– How does the firm prevent and detect errors?
These questions reflect the investor’s focus on data integrity. They rely on fund reporting for their own decision-making. Mistakes at the administrator level can ripple across the investment process.
4. Technology and Data Security
Technology is no longer a back-office issue. It is a core part of investor due diligence. Investors want to see reliable systems, fast data access, and secure infrastructure.
They ask:
– What fund accounting system is used?
– How is investor data stored and protected?
– Are there disaster recovery and business continuity plans?
Investors often bring their own IT security teams into the review. They assess firewalls, encryption, penetration testing, and cloud infrastructure. At Pinnacle, we prepare our clients for these reviews with detailed documentation and walkthroughs.
5. People and Expertise
Systems and processes matter. But people still drive performance. Investors want to meet the team behind the operation. They assess the administrator’s ability to grow with the fund and provide responsive service.
They ask:
– Who will be the day-to-day contact?
– What is the team’s experience with similar funds?
– How is staff turnover managed?
Institutional investor due diligence often includes interviews with the administrator. Investors want to hear directly from those doing the work. They gauge technical depth and communication style. They also want to ensure continuity in service as the fund grows.
6. Service Model and Responsiveness
No two funds are the same. Investors want to know if the administrator can support custom reporting and flexible structures. A rigid service model is a red flag.
They ask:
– Can the administrator handle special vehicles or multi-currency classes?
– How does the team respond to ad hoc requests?
– Are service level expectations documented?
Funds that receive institutional capital need tailored solutions. At Pinnacle, we often create custom reporting for specific LPs and respond to unique structuring needs.
7. Fees and Contract Terms
Transparency in pricing and service agreements is essential. Investors look for alignment between cost and value. They also want flexibility and clarity in the contract.
They ask:
– How are fees calculated and benchmarked?
– Are there minimum fees or lock-in periods?
– What happens if the manager or fund changes?
Institutional investor due diligence will examine the contract closely. They look for red flags in pricing, notice periods, and service exit clauses. These details signal how the administrator treats clients over time.
8. Experience with Institutional Clients
Institutional investors prefer administrators who already serve others like them. They look for industry focus, fund size familiarity, and relevant experience.
They ask:
– What is the administrator’s experience with institutional clients?
– Can they provide references?
– What type of funds do they typically service?
This part of the process often includes reference calls. At Pinnacle, we support this by coordinating with clients who can speak to our service and partnership approach.
9. Transparency and Communication
Clear, timely, and proactive communication is non-negotiable. Investors expect administrators to provide accurate reporting without surprises.
They ask:
– How does the administrator communicate NAVs and capital calls?
– Is there a client portal for real-time access?
– How are issues escalated and resolved?
Communication is a major trust factor. It influences the investor’s confidence in the fund’s ability to operate smoothly, especially during high-volume periods.
10. Controls Over Cash and Fund Payments
Investors take payment controls very seriously. They want assurance that no money moves without oversight. Administrators must implement strict protocols for initiating, reviewing, and approving fund and investor payments.
They ask:
– Who has authority to initiate and approve payments?
– Are there dual controls for payment release?
– How are payment instructions verified?
Institutional investor due diligence often includes a walkthrough of the administrator’s payment procedures. At Pinnacle, we provide transparency around how wire transfers, capital calls, and distributions are processed. We also highlight our use of secure banking platforms, audit trails, and callback procedures to prevent fraud.
Cash movement is one of the highest-risk areas in fund operations. Investors want to know their capital is protected at every stage.
Conclusion
Institutional investor due diligence is a rigorous process. It goes far beyond checking credentials. Investors want assurance across technology, governance, control, service, and people. They seek administrators who meet high standards today and can evolve with the fund in the future.
At Pinnacle Fund Services, we help our clients navigate these reviews with confidence. We provide the documentation, transparency, and experience that institutional investors expect. If you’re preparing to raise capital from institutions, understanding how they evaluate your service providers is critical to your success.
If you have any questions about please contact David Smith at [email protected] or 1-604-559-8921.