David Fisher is a Vice President at Phoenix American

David Fisher

Vice President

Many new investment fund managers little consider the back-office needs of a fund and dismiss the need for a transfer agent. It is natural at the early stages in the life of a fund for management to assume that investor relations and portfolio accounting will be easy enough for a low-level hire to handle in-house without the need for an outsourced transfer agent for a fund administrator. As the assets and investor count grow, one might think, additional people can be brought in as needed. This thinking can be a critical mistake. As an investment fund grows the needs and expectations of investors, financial advisors, auditors and regulators grow exponentially.

The need for a transfer agent partner will certainly emerge for any fund with a growing investor count. Partnering with a transfer agent provider from the launch of a fund sets up the manager for smooth operations and the seamless ability to scale. Otherwise, the decision later in the life of the fund to transition from overwhelmed in-house fund operations to an outsourced provider will be disruptive, expensive and frustrating to investors.

There are eight compelling reasons for a fund to adopt a transfer agent partner from the very start:

  1. Professionalism– A third-party transfer agent enables management to focus on fundraising and asset management. An in-house team employed to handle investor relations and compliance is a distraction from the core capabilities of fund management. An effective division of labor means partnering with a professional outsourced provider for fund operations.
  2. Efficiency– An experienced transfer agent using specialized systems maximizes the return on management’s operational dollar. An in-house team of employees is a fixed cost whether there is sufficient work for them to do or not. Wages, benefits, vacations and sick time are complications management avoids with an outsourced back-office partner. Also, in-house employees are necessarily an expense to management while professional transfer agent services are an expense to the fund.
  3. Credibility– Institutional-class outsourced transfer agent services fulfill due diligence requirements for many institutional and ultra-high-net-worth investors. Even retail investors are aware of the difference with a professional investor relations team in place. The investor experience for both is reassuring.
  4. Compliance– Audited, SEC-registered transfer agent services satisfy regulators, managing broker-dealers and online investment platforms. Also, the compliance capabilities of advanced administration systems streamline investor qualification, OFAC, KYC and AML protocols and clearing.
  5. Integration– Some transfer agents offer full back-office services. A single provider of investor services, fund accounting and tax document processing saves on costs, minimizes errors and maximizes data security.
  6. Scalability– A fund benefits throughout its life cycle from fund administration services that can expand and adapt as the fund grows and changes. Robust transfer agent technology at the heart of your back-office operations enables seamless unlimited growth.
  7. Reputation– Accurate processing, responsive investor services and customized deliverables promote confidence in your investment brand in the eyes of investors and advisors. The transfer agent services behind an investment product are one element in an advisor’s recommendations to clients. How well a fund is supported reflects well on the advisor over the years of his client relationship.
  8. Insulation – In any economic environment, outsourced fund operations represent greater efficiency and professionalism for an investment fund. In tight labor markets especially, partnering with a transfer agent provides insulation from wage inflation and elimination of key person risk. Redundancy and backup in terms of both personnel and data

Throughout the life of an alternative investment fund, transfer agent services are designed to eliminate operational burdens so management can focus on raising funds and managing assets.

This flowchart captures the alternative fund life cycle.

Transfer agent services should be considered in terms of an alternative to hiring, training, equipping and retaining in-house back-office staff. Fund managers are well advised to partner with a strong transfer agent services provider from the launch of their fund so that they can concentrate on the investments that drive returns.