How do you make sure the day-to-day runs smoothly across your entire firm, and not just LP reporting? Offloading time-consuming back-office tasks to an experienced team of accountants and advisors helps. CFOs are concerned managing their firm’s accounting in-house increases overhead while providing limited return. So how do you outsource crucial but burdensome administrative tasks to experienced professionals? Matt Trinkaus walks us through the process and shows us when it works, and when it doesn’t.
Paul Filanowski 00:01
Matt, thanks for joining. It’s great to have you here. Welcome to our webcast series. Matt is our CFO and heads our management company accounting team. I’ve been really looking forward to talking to you today about the management company given the push we’re seeing in the industry to outsource it. So why don’t we just kick it off with a quick intro?
Matt Trinkaus 00:20
Thanks, Paul. It’s great to be on here. Thanks, Chris for putting it on. This is my first time going through this – this type of webcast – so very happy to be here. Thank you to everybody who has joined us, looking forward to going through some of the questions. As a quick background, my experience has been in the corporate accounting world. I come from the grounds of KPMG and Stanford, Connecticut, back in the day, and kind of stayed within that space of SEC reporting, a lot of background and internal control, segregation of duties, working at multinational, global firms prior to 4Pines. I came out to 4Pines to join the exciting launch that Mike was working on with Bob Chowaniec and Celeste Barone and was very excited to use my experience in the corporate world and jump into the world of private equity, which has been a great transition. I’ve learned a ton, and we’ve seen a lot of overlap between what I was doing from a corporate perspective and what some of the management companies that we are working with and have talked to. It’s been a nice transition for me.
Paul Filanowski 01:44
Excellent. Let’s kick it off. So tell us about management company accounting versus fund accounting, and why it’s different from the CFO’s perspective.
Matt Trinkaus 01:53
Yeah. That’s a great question, Paul, you know, I think to answer this, I’m going to start at the fund level. When you look at the fund level, the funds are basically, think of them as an investment fund structure. Essentially, the decision-making for the LPs is outsourced, the work that’s being performed is outsourced. That’s the fund admin work, that’s the audits, it’s the taxes, it’s the different services that are provided for the fund. It’s not necessarily an operating company. Whereas management companies are your operating companies. That’s where you have your payroll expenses, that’s where you have the legal fees to set up the funds, the work on the different deals, you have essentially anything corporate-related. When you think about the operating company, that’s being done at the main level. So, when you think about accounting and reporting, it’s a lot different. You want to understand – the management deal fees coming in are pretty straightforward, but you want to understand the expenses that you’re incurring, are you being efficient with the cash? Do you have enough people on staff? Where can you move some of your investments internally to help grow your business from a management company standpoint? The accounting for that is very much corporate-related-level-type accounting versus fund accounting, where you’re dealing with a lot of the NAVs, valuations, distributions, and capital calls. You don’t see that necessarily at the management company. It’s more of your nuts-and-bolts foundation for these operating entities. And that’s why it’s really important to have, you know, we’ll get into some of this, but it’s important to have your segregation of duties. It’s important to have your internal controls. And a lot of times, at the company level, your staff is pretty small, so how do you kind of supplement that with additional resources?
Paul Filanowski 03:58
Great. And why is it useful to have both fund accounting and management company accounting outsourced?
Matt Trinkaus 04:05
It doesn’t all have to be outsourced. It can all be outsourced. You can have different admins for your fund and for your management company. We work across all the scenarios. An advantage of having it all outsourced, and specifically with the same group, is that it helps speed up communication. It helps the teams align with the structure of the entity, how the payments are working, as a management company, and how those allocations are getting down to the funds. It’s very simple in our cases where we also do the fund work, there are certain things that are coming up, or if there are certain new allocations that the entity wants to do, it’s easy to work with a fund team. There’s a quick turnaround if there are adjustments needed. It is nice to have. It’s not necessary, but it really streamlines communication across both your management company work and fund work, because they do work hand-in-hand a lot of times.
Paul Filanowski 05:16
Are there scenarios where a company would just outsource the management company?
Matt Trinkaus 05:19
We look at the management company – everyone is a little bit different in what they’re looking for and what they need. We sometimes work with firms that just want to outsource a very specific part of the management company. We work closely with their internal teams. We do this for clients, where we’re just doing the management company, and then they either have their own internal team for the funds, or they have an external party that does the fund work. We work in all those different scenarios, and we very much look at what are the needs of the clients, where are they struggling, where are they behind, and where could they use some extra resources. Because, again, usually the resources at the management company level are pretty scarce. It’s usually a little bit of a crossover between the management company work and the fund work, so we try to play where they need us.
Paul Filanowski 06:26
Great. And can you share a few reasons why firms should outsource their management company?
Matt Trinkaus 06:31
There’s plenty there. The first item that comes to my mind is managing people. The labor market has been very stretched, especially since we were going through the pandemic, and a lot of the work is being shifted to remote locations. There’s software that’s improved the efficiency of what we do on a day-to-day basis. Folks in the accounting space – there’s a lot of competition. You have the Big Four, you have PE firms. You have folks that are offering full-time remote capabilities. There’s just a lot of different turmoil and changes, not only in our industry, but that all industries have gone through. So, the first time it comes by, it’s managing people. We see that a lot. There are a lot of times we’re talking with folks and they say, XYZ just left, can you take on these additional tasks that we weren’t doing, but we need help with now. So that does create a lot of volatility, because the business still runs, right? The management company, think of it again as the operating entity, the day-to-day work is still there and needs to be done. So that’s the first that comes to mind.
The second piece is the internal controls. Because the teams are usually very small, how do you supplement that with folks where you can have reviewers, preparers of the journal entries, preparers of the schedules, and reviewers of the schedules? How do you have segregation of duties when it comes to cash movements? Who’s setting those cash payments up, who’s approving them, and how do you mitigate some of the risk across the management company? Because it is such a small team, your vendor management is really important. How are those vendors set up? Who’s reviewing those? How are those being confirmed? Who is managing that whole process? A couple of other items: in certain circumstances, it does reduce costs. That’s not always the case but, depending on the level of volume that your business has, it might not justify doing the accounts payable, to do some of these other back-office tasks, especially where, if you have to go pay, you know, $100,000 for a staff accountant for 40 transactions a month. It’s not necessarily a 40-hour-a-week type of role. That’s where you can supplement with the outsourcing model. It helps you get going and helps you get started for that type of work.
And then the other thing that I can think of, another reason is having an outsourcing team that can manage the day-to-day. You still need your internal folks. You still need somebody who is working with the partners directionally on business. You need to get them out of the day-to-day such as reviewing journal entries, recording journal entries, booking journal entries, doing the cash in bank reconciliations, worrying about the accounts payable process, and some of these ancillary day-to-day activities. To not have to do that, to rely on the partner, so that those folks can work more strategically with the partners and also the firm – I think this is another big, big reason why we’re seeing that.
Paul Filanowski 10:18
That’s great. We just had a question come in, I think that’s perfect for this to come up right now. Do you have some practical advice on how to sell my leadership team on getting outside support? I feel like if I have to ask, it’s a career-limiting request.
Matt Trinkaus 10:33
I wouldn’t look at it as a career-limiting request. If the business is growing and the volume’s increasing, they don’t want their higher-level folks working on these day-to-day type transactions. They want them to be able to focus again on what’s going to drive up your business, what’s going to drive additional funds, what’s going to drive additional capabilities within your team, and what those skill sets are being paid for. You don’t want to pay somebody who is a high-level person to do your accounts payable. I don’t think it’s necessarily a good use of their time. And that’s where outsourcing comes in, and being able to free up their time, because time is our biggest resource, and it’s also our biggest constraint. I wouldn’t look at it as a career-limiting move, more like as an investment into what you’re doing, into the growth of your business. And that’s without adding another person because, again, when you add more people to your team, that’s a little bit harder. It can be a little more costly.
Paul Filanowski 11:45
Are there top mistakes to look out for and avoid this problem?
Matt Trinkaus 11:52
Yeah. I mean, everybody’s a little bit different. I think if folks are looking at outsourcing their management company work, I think understanding your partner and team structure is important. Who are you going to be communicating with? What’s the cadence of the communication? Who’s going to be working on your team? As I mentioned earlier, one of the biggest advantages is not having to manage your team. Well, you also don’t want to have to manage your outsourcing team, either. And I think understanding how the teams are set up to support you and make sure that they’re fully capable, fully staffed, communication is quick and tight, turnaround times are important. I think as you’re looking to outsource, that is a key aspect of what you’re looking for.
I think the other piece is being engaged through the process. We see the best transitions with the teams on the other side, and very engaged. It’s hard for an outsourced entity to come in and just pick up things and know your business from Day One. There is a period of a little bit of hand-holding that is necessary. So having those steps outlined, between who’s on first in the sense of who’s doing what, internally versus externally, is important.
Paul Filanowski 13:14
Yeah, that’s great. And then we also had another question come in from someone who said, I’m not a fan of external teams, because I feel like it’s hard to exercise quality control, and I feel like I have to review what’s turned into us. Do you have a solution for that?
Matt Trinkaus 13:26
Yeah, I think at the management company level, it’s a little bit different versus at the fund level. Maybe the fund team has their own way of doing the reporting, everyone sees it a little differently. Where we operate, we are essentially a co-sourced model 99% of the time. We certainly can help create new reports and different views of how you want to analyze your business, but for the most part, we come in and we’re taking over the work from the internal team. While we always look and want to make improvements to that, there shouldn’t be a lot. These are day-to-day transactions. They are monthly financial reports, quarterly financial reports, whatever that is, we don’t look at it as a lot of work. Again, in the beginning, there’s some handholding in the sense of making sure we understand your business and how you want to capture transactions, to generate the reports and analysis that you want to do. There shouldn’t be, from a management company standpoint, a huge gap in quality. There shouldn’t be reworking – if there is, the way we would look at that, if you are reworking things, show me what you’re doing, show me how you’re doing it, show me why you’re doing it. And then we typically can take that so it’s in the format you know, it’s how you want to see, it’s how you want to present it.
Paul Filanowski 15:06
So, on the topic of outsourcing, we’re hearing a lot in the industry, and, obviously, we’re pushing a lot too, of co-sourcing. Is that just for fund accounting?
Matt Trinkaus 15:16
No. For management company accounting, we don’t own any client data. We certainly can set it up that way, but our model is that, if you have QuickBooks, a lot of the onboarding for the management company is getting access to your systems. We don’t migrate data. We don’t move you from Sage to QuickBooks, or from QuickBooks to Business Central. We operate in your space, your file servers, your communication tools, or however that looks. If you say, hey, you guys, you’re not doing a great job, we want to take this back internally, there’s no data migration. It’s your data. You just shut off our license, and you go back to your day-to-day. There are times when we work with clients and they want to move things, they want to change, they want to go through their own implementation of a new GL system, or they want to start fresh, and we will help with that, or we start from the beginning, and we will make recommendations. We do help there. But for us, we want the clients to own the data. We’re there to support them.
Paul Filanowski 16:51
What size firms do you see outsourcing? Is it just for emerging managers?
Matt Trinkaus 16:57
We see a little bit of everything. We do have some emerging managers where you’re setting everything up from the beginning, which is great because you get to set it up. There’s no historical baggage, there are no data integrity issues, there’s no data migration. But like I said earlier, we look at our part. So, if somebody wants just accounts payable, that’s their process, and that’s where they need help. We will come in and either work right into their process, help establish a new process, or make improvements to the one that they’re currently using. If they just need AP and cash reporting, we will do that. It’s not just for emerging managers. We have a client that’s a real estate entity with over 30 funds. It doesn’t matter what the fund size is. It’s more, where they have gaps at the management company that we can help them with.
Paul Filanowski 18:01
Another question that came up, what services are you and the team providing? Are you doing payroll, expense management, and reporting?
Matt Trinkaus 18:07
Yes, for the CFOs out there, anything corporate-related, to be honest. We do HR and payroll in the sense of processing payroll. We don’t have an HR team. What that looks like is, typically, if a firm has PEO that they’re using, we can onboard, we can offboard employees within that system, and we can process the payroll for them. We can do their 401(k) filings and all that stuff. We don’t operate anything else within the HR space, except for processing, onboarding, offboarding, and payroll. But the rest of it, from an accounting standpoint, we do. We do accounts payable. We do admin support. We could do audit support, if your firm’s audited, and tax support… We can do the monthly reporting, the quarterly reporting, whatever that looks like, from an FP&A standpoint. Everything is a little bit different, and depending on what their needs are, from a corporate perspective, if you need help with planning your budget, we can help plan the budget, we can help prepare schedules for you. If you need help with cash flow forecasting, we can help prepare schedules that are going to make sense for your entity. So, there are a lot of different verticals within the space. The simplest way to say it is that anything that you’re facing, from a corporate perspective, whether it’s just journal entries to financial reporting and budgeting, or anything in between, we can help out.
Paul Filanowski 19:42
Great. And where is your staff located? Obviously, some firms are offshore. Is there anything besides Syracuse and Stanford?
Matt Trinkaus 19:49
We’re not using anything offshore. We have staff that’s in Stanford, where our main headquarters is, and then we also have staff up here in Syracuse. We see a lot of success, just because the entities, the CPAs up here are working on corporate-level-type jobs. This is their space. We have staff up here in Syracuse for management company work.
Paul Filanowski 20:20
And how do you staff each client? Do you oversee each client? Have a dedicated team?
Matt Trinkaus 20:24
Yes, we have dedicated teams. We have small teams ourselves, but we have dedicated teams that work with each client. We want to make sure, when folks are on vacation that there are people that can step in and keep the work going, and what’s needed for the clients. You have dedicated support and you have our team’s contact information if you need to reach out and need something urgent. If you have a request, you’re not putting requests into an email box where you may or may not hear anything back. Each team is staffed with its own people who work together. It’s usually a staff person, the senior level account person, and I’m there as well to help support and oversee. We’re continuing to add to the staff so that will continue to grow, you know, I think it’s an exciting opportunity. We built out the team to support that. And I think it’s having the communication – we communicate weekly with our clients. It’s very important. With a lot of them, we have standing calls to go over what’s going on for this week. What do you guys need? What are we working on? That type of service is important to us, and it helps us learn the business. It helps us learn what they’re looking for, what they need to do, and where their priorities are for the upcoming week, month, or whatever that is.
Paul Filanowski 21:58
And you touched on earlier about the accounting shortage out there. How does 4Pines maintain a top-level team in today’s environment?
Matt Trinkaus 22:07
Yeah, again, for the management company, being able to staff up here in Syracuse, and build out an office up here in Syracuse, has been awesome. There’s a lot of competition down in the New York-Connecticut region. You’re competing against PE firms. You’re competing against the Big Four. We have smaller regionals up here that provide a great base for their careers. We have a ton of operating entities up here that have a great pool of candidates. So, the competition is a little bit less from a comp standpoint, but the skill sets are basically the same. While they don’t necessarily have the PE experience all the time, they have operating experience. They know how to recruit, they know how to advise, they know how to do these types of things. And for us, I think that’s a real advantage because sometimes, to be frank, the management company work isn’t – you know, sometimes it’s great and exciting, sometimes it’s pretty, you know, not exciting. It depends on what the staff is looking for, what they’re looking to do, and where they’re looking to grow. And I think we found a nice location up here, where we have very talented folks who like doing this work. It has helped us and helps support our clients.
Paul Filanowski 23:29
That’s great. And what platforms do you use to support clients?
Matt Trinkaus 23:34
We have a wide range of platforms or software that folks are using. Just looking at what GL folks are using, again, these aren’t complicated businesses where you have inventory and have all this other stuff that you need to track. It’s all service business. You don’t need a complicated system, unless you have currency impacts, unless you have many different entities where you have all this activity going to and from. So, most of the folks are in QuickBooks Online. We do have QuickBooks Desktop. That’s another GL platform. We operate in Microsoft Business Central, the base kind of enterprise package, we have clients that are on the Allvue management company platform. From a payable perspective, it ranges. We still do a lot of manual kind of wire AP runs. We have also Bill.com, Ramp, and Concur. All of those are a little bit different. They all support different clients and their needs. So really from that perspective, it does help automate a lot of what we’re doing, but it’s important in the sense of being able to have that automation at not a significant cost. So, we see a lot of different ones, which is great, we are pretty agnostic to what our clients use. A lot of them have the same functionality, a similar feel and processing. There are differences, though, when you get into the GLs and how those integrate with the different GLs, because some of them are more complicated, where you need more consulting work to build out the APIs, while something like QuickBooks is usually pretty, pretty easy to do.
Paul Filanowski 25:43
Are there any new ones you are seeing in the industry?
Matt Trinkaus 25:48
New platforms are coming out every day, in the sense of AP workflows and things like that, and we’re always trying to stay on top of that. We try to carve out time for demos with new systems, we try to stay on top of the tech and in front of it, as far as what’s coming out there. So, there are always new ones out there that we try to stay on top of and see if they can replace us in the sense that the automations are so great that you don’t need all of the time and effort and hours that are required to produce an AP run. It’s how we can use the technology to supplement what we’re doing.
Paul Filanowski 26:41
I know we’re running out of time here. We’ve got a couple of minutes left. We’ve touched on a couple of questions. We had a few more come in. We’ll try to get to them. If we don’t, we certainly will follow up and get these questions answered and out to you. Can you tell us more about management company accounting and external LP reporting? How does it come together best?
Matt Trinkaus 26:59
They’re two separate functions. It depends if the management company is paying for everything. If the management company is paying for everything, there’s some inter-company back and forth… Obviously having that done and accurate and set up nicely for the fund team to then go and do the journal entry that they need to do to then spit out that reporting for LPs is important. And I think that’s where we see a lot of advantages to having the same management company outsourced as your fund team because we can work together and build out those timelines with the clients to see what best fits their LP requirements and what’s required for their standard contracts.
Paul Filanowski 27:53
And then lastly, we have time for one more here. Who should someone reach out to if they want to hear more about this? Is it you? Is that someone else on your team?
Matt Trinkaus 28:01
Definitely reach out. Reach out to Paul. Reach out to myself. I’m not sure if my contact information came through on the invites or not. But definitely reach out to Chris as option two. Definitely we’re interested in taking on more clients and more work, building out the teams even more. It’s been exciting in 2024. I can’t believe it’s already towards the end of August, but it’s been very, very busy. Great to see there’s been a lot of interest. We see a lot of interest because of the software improvements. Back 10 years ago, when you were outsourcing your AP, you were literally scanning PDFs, or somebody had to print PDFs and go pick them up. And you had to be there at the client to do it. Now, everything is emailed, everything is going through OCR technology, where it’s doing some of the work for you. So, we have seen a lot of interest in it. And I do think it’s because it’s just been made simpler to outsource it, and, plus, the businesses are starting to focus more on their own internal processes.
Paul Filanowski 29:12
Thank you all. We’ve come to our time limit here. I appreciate it, everyone. Matt, thanks for taking the time to spend with us. Chris, thank you for your time. Thank you to everyone who joined the call as well. We really appreciate it and look forward to seeing you again soon.
Matt Trinkaus 29:28
Thank you, everybody. Bye.
