Fund Administration Agreement: Terms to Check Before Signing

Short answer: Before you sign a fund administration agreement, check six things: the written scope of services, the fee terms and what can change them, how either side can terminate, who owns and can export your data, how records are kept, and how the provider handles security and errors. Have fund counsel review the final document; this is a checklist, not legal advice.

Most GPs compare fund administrators on the sales deck and sign whatever contract arrives next. The agreement is where the sales deck becomes a commitment. A vague scope turns into disputes over extras, a weak exit clause turns a bad fit into a long one, and a missing data clause makes switching expensive. This guide walks through the clauses that matter most to a small or first-time manager.

For the service these contracts cover, see our fund admin page. If you are still comparing providers, start with how to evaluate fund administrators and the fund administrator RFP scorecard.

Who is the client?

Start with the parties. Is the contract with the fund, the management company or both? The answer decides who pays, who can give instructions and who is bound by confidentiality. For a family of funds, check whether each vehicle needs its own schedule or whether one master agreement covers them. If an SPV is added later, the agreement should say how it joins and at what cost.

The scope of services

The scope schedule is the most important page. Insist that it lists services in plain language, not categories such as "fund accounting and related services". Check each of these:

• Books and capital accounts, including how often they are closed.

• Capital calls and distributions: who prepares notices and who approves.

• Investor onboarding and ongoing investor records.

• Quarterly and annual LP reporting, with delivery timelines.

• Audit support and the auditor handoff.

• Tax: who prepares the return and K-1s, or whether that is excluded.

• Banking and payment processing.

• The dedicated or named team, if one is promised.

Anything excluded should be listed as excluded. Anything listed as "available" should have a price or a pointer to the fee schedule. Our guide to the pricing models behind fund administrator fees shows how to map scope to cost.

Tax scope deserves particular care, because it is often the line that moves between "included" and "extra". General information, not tax or legal advice; your tax preparer and counsel should confirm who owns each filing.

Service levels and deadlines

Your LPA sets reporting deadlines for you, so the administrator's turnaround must fit inside them. Ask for written targets for:

• Closing the books after quarter end.

• Delivering draft statements for your review.

• Issuing capital call and distribution notices after your approval.

• Responding to LP inquiries.

• Providing audit schedules.

If the provider will not commit to timelines, ask what it will commit to. A target with no remedy is still better than silence, because it shows you when to escalate. For audited funds relying on the custody rule's audit route, audited GAAP statements must reach all investors within 120 days of year end (17 CFR 275.206(4)-2), so the administrator's audit schedule matters.

Fees and what can change them

Read the fee clause with a pencil. Check:

1. The base fee and what it covers. It should match the scope schedule.

2. Unit fees. Per LP, per close, per transaction or per report.

3. Minimums and when they begin.

4. Escalators. Can fees rise annually, by how much and with how much notice?

5. Out-of-pocket costs. Which are passed through and with what markup, if any?

6. Invoice timing. Who is invoiced, when, and what happens if a payment is disputed?

Fee clauses should also say whether administration costs may be charged to the fund. In a 2020 risk alert, SEC examiners reported advisers charging funds for expenses their operating agreements did not permit (SEC risk alert). Counsel should confirm the LPA allows the fee before the first invoice is paid.

Term and termination

How easy is it to leave? Look for:

• Initial term and renewal mechanics. Does it renew automatically?

• Termination for convenience. Notice period and any fee.

• Termination for cause. What counts as cause, and is there a cure period?

• Termination at a bad moment. Many GPs ask that the provider cannot stop service in the middle of an audit or the weeks before a K-1 deadline.

• Fees on exit. Any fees for data export, final closing statements or transition support.

The cost of a poor exit clause shows up only when you try to switch, which is the wrong time to read it.

Transition assistance

A good agreement says what the provider will hand over when the relationship ends and by when. A practical list:

• Trial balance at the termination date.

• Capital accounts by LP, with support.

• Investor records and subscription documents.

• Open items list.

• Bank and portal access handover.

• Reasonable cooperation with the successor.

If the contract is silent, you negotiate this from a weak position.

Data ownership, access and records

Fund data and investor information should belong to the fund and the manager, not the provider. Check:

• Ownership and export. Can you export your data in a usable format at any time, not only at termination?

• Access. Do you have read access to the ledger and records during the term?

• Retention. How long does the provider keep the records after the relationship ends?

Registered advisers have their own recordkeeping duties: many required records must be kept for at least five years from the end of the fiscal year of the last entry, with the first two years in an appropriate office of the adviser (17 CFR 275.204-2). Your LPA, tax and audit needs may call for different periods, so ask counsel what applies and make the contract match the longest.

Security, instructions and payments

Payments are where the risk is highest. The agreement or an attached procedure should state:

• Who can give payment instructions, and how they are authenticated.

• Which changes to bank details need a call-back to a known number.

• What happens when an instruction is questioned or delayed.

The FBI recommends verifying requests for changes in account information through a secondary channel and, if you find a fraudulent transfer, contacting your bank immediately to request a recall and filing a complaint at ic3.gov (FBI IC3 PSA). Write that into the procedure. Ask also how the provider protects investor data and whether it can share a controls report; a SOC 1 report is the usual document to ask for.

Reliance, errors and liability

You will see language limiting the provider's liability, defining standards of care and requiring you to supply accurate information. These are normal, but the details matter:

• Reliance. The provider usually relies on information you give it. Check whether it must flag inconsistencies it can see.

• Error correction. What happens when a statement is wrong? Who notifies LPs, and who bears the cost of corrections?

• Liability limits. What is the cap, and does it apply to the provider's own errors?

• Indemnities. Who protects whom?

Do not accept these as boilerplate. Ask counsel to explain them in plain terms and to flag anything unusual compared with similar agreements.

Independence and other roles

The administrator should not be your auditor, and the agreement should not blur that line. Ask how the provider handles conflicts if it serves other funds with overlapping investors, and whether subcontractors are used for any part of your work and, if so, who is responsible for them.

Change control

Funds change. Ask how the contract handles a second fund, a new SPV, more LPs, a new reporting template or a change in your investment strategy. A change-control clause that sets how new work is scoped and priced prevents surprise invoices.

A pre-signature checklist

• ☐ Scope schedule lists services and exclusions.

• ☐ Fee schedule matches the scope, with escalators and minimums stated.

• ☐ Service timelines fit inside LPA reporting deadlines.

• ☐ Termination and transition terms are acceptable.

• ☐ Data ownership, export and retention are clear.

• ☐ Payment instruction and call-back procedure attached.

• ☐ Liability, reliance and error terms reviewed by counsel.

• ☐ Named service contacts and escalation path included.

How Allocations handles the basics

Each fund on Allocations has a dedicated fund accountant, and we support your audit. The Fund plan is $19,500 per year; K-1 preparation is a separate add-on. For any agreement you sign, with us or anyone else, use the checklist above and have your counsel review the final terms.

Frequently asked questions

Do I need a lawyer to review a fund administration agreement?

Yes, it is wise. Counsel can review liability, termination and data clauses.

What is the most overlooked clause?

Transition assistance. It decides how hard and costly it is to switch later.

Should the agreement name a dedicated contact?

If the provider promises one, ask for it in writing, with an escalation path.

Can the administrator raise fees mid-term?

Only if the contract allows. Check escalators and notice periods.

Who owns the fund's records?

The fund and manager should own the data. Make export and retention rights explicit.

Does the contract cover K-1s?

Not always. Check whether K-1 preparation is included, extra or excluded.