By its strictest definition, a transfer agent is a neutral third-party organization that processes the transfer of a company’s securities from one investor to another. Due to the requirements of their Securities and Exchange Commission registration, some investment funds are required to engage a third-party transfer agent. Others may choose to do so even if they are not compelled to because transfer agents frequently offer extra back-office services in addition to their core function. Due to their intimate involvement in the company’s investor data and industry relationships, transfer agent firms are in a unique position to operate as a fund sponsor’s operational partner.

Typical Limitations of Transfer Agents

The choice of a transfer agent partner by an investment fund may have operational consequences that affect the fund’s strategic goals. Not every strategy a fund manager might wish to employ is practically feasible given their transfer agent’s experience, system capabilities and operational preference. Many transfer agencies are constrained to a limited set of capabilities that are the result of their range of experience and the sophistication of their system of record. A transfer agent with extensive experience, a broad perspective and system adaptability is invaluable for aggressive and opportunistic fund managers.

Phoenix American’s solution-based mentality and the agility of the STAR-XMS transfer agent system enable us to provide the operational solutions that cutting-edge fund sponsors want. In this instance, we were able to provide a unique transfer agent solution for a client fund, leading to the commitment of millions of dollars in extra capital and the ongoing access of a publicly traded fund to a previously untapped pool of investors.

Transfer Agent Case Study

The Issue

An established real estate developer, operator and fund sponsor with a portfolio worth more than $60 billion made the decision to sponsor a new real estate investment fund and engaged an established transfer agent for operational assistance. A publicly-traded preferred stock REIT that would be listed on the NASDAQ exchange was the investment product. However, the fund’s sponsor wanted private investors to have access to the fund’s preferred shares (Series A) via the advisor-assisted alternative investment market.

There was no natural transfer agent provider to support this hybrid architecture. The investors in the Series A shares could not be accommodated on the investor ledger maintained by the client’s transfer agent for publicly-traded shares. Data for shares that were non-traded would be compiled using a different distribution method and in a different format than data for shares that were traded publicly. The Series A investor data was incompatible with the transfer agent’s system technology criteria.

Another issue: the investor information for the Series A shares would also need to be kept strictly separate from any potential public trading in the transfer agent system of record. There could be no potential for the private shares ever to be traded publicly. The investor ledger environment utilized by the transfer agent could not be configured to accommodate this bifurcated investor roster. The transfer agent considered the arrangement to be operationally unfeasible despite the fact that the client’s fund formation document permitted both sets of investors to participate in the fund. The technology at hand was unable to support such a structure. If it were to be possible for both private and public investors to contribute capital to the same fund, a creative solution would need to be developed.

A New Position for the Transfer Agent

The Approach

Phoenix American, a pioneer in transfer agent solutions for the non-traded fund industry, was contacted by the client’s transfer agent. An individualized solution for the non-traded Series A shareholders was developed in collaboration with the client thanks to the expertise of Phoenix American personnel and the adaptability of the company’s STAR-XMS system technology. The solution was straightforward, efficient and simple to communicate.

A transfer agent team meets in a conference room.

Phoenix American would stand in for the Series A investors and service their needs as a sub-transfer agent. Phoenix American would be listed as an omnibus account on behalf of all Series A investors on the publicly-traded transfer agent’s investor ledger. The several hundred of non-traded Series A shareholders taking part in the fund would be collectively represented as “Phoenix Transfer, Inc. as transfer agent and not as record owner,” showing an omnibus balance representing all of the Series A investor holdings.

The publicly traded transfer agent would make omnibus distribution payments to Phoenix American on behalf of all of the Series A investors. Then, Phoenix American would distribute funds to the Series A investors according to allocations. New investment onboarding and all transfer agent services offered by Phoenix American would be performed for the Series A investors. The shareholders of the publicly-traded shares would be served by the publicly-traded transfer agent. There would be no possibility for any Series A shares to be traded publicly. The investor ledger would contain two well-serviced but strictly separated groups of fund investors.

The Benefits

The client sponsor and its investors both benefited from the implementation of this solution. Millions of dollars of additional capital were contributed to the fund and hundreds of additional investors were able to participate. This was the first time a transfer agent had employed this structure. It significantly contributed to the variety of sales distribution options that investment fund sponsors might choose to deploy.

A prominent woman smiles in front of the camera.

Innovation in Transfer Agent Services Focused on Client Success

The combination of in-depth knowledge in alternative investment transfer agent services, technological know-how and a commitment to finding solutions on behalf of clients allowed for the creation of this bespoke solution. With its focus on the unique requirements of each client fund, the goals of fund management and how they prefer to conduct business, Phoenix American distinguishes itself from other transfer agent providers. This operational solution is just one example of how Phoenix American leverages its long experience and transfer agent system sophistication to support the strategic goals of client fund sponsors.