The transfer agent is an important part of the development of the alternative investment into a modern investment experience. The efficiency of new electronic investor onboarding platforms called ‘straight-through processing’ is a good example.

Straight-through processing (STP) is the digitizing of the investor onboarding lifecycle for a private fund, connecting a digital investment form directly with the transfer agent system of record for the investment product. Subscription, execution and settlement is all performed in a digital format – an alternative to the traditional paper-based subscription document process which is prone to errors, delays and disruptions. Straight-through processing accelerates and simplifies the process for all parties including transfer agents.

Straight-through processing platforms greatly streamline the new investment process for private equity and venture capital funds but they depend entirely on connectivity and integration with transfer agent systems – the integration of each of these technologies with the transfer agent of record for each of the investment products being purchased. This process is well under way among transfer agents in the industry.

Straight-Through Processing Technology Providers

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The ability of a transfer agent to provide ongoing fund administration and back-office support for investment funds – services which may include investor relations, distributions, tax reporting and compliance – begins with the incoming new investment. Electronic subscriptions, unlike traditional paper subscriptions, greatly reduce input errors, eliminate mailing time and accelerate processing for the transfer agent. Every aspect of the investor, advisor and sponsor experience is improved. Most transfer agents and a growing percentage of fund sponsors have adopted straight-through processing. But financial advisors are still slow to integrate the new technology into their practices.

At the Alternative & Direct Investment Securities Association (ADISA) Spring Conference in San Diego on April 25, Phoenix American’s Chief Compliance and Risk Officer, Ned Montenecourt, discussed the need for financial advisors to educate themselves on straight-through processing and encouraged adoption of the technology.

The data flow environment for advisor-assisted investments in alternatives is a complex one. The efficiency and accuracy with which the initial investment data is transmitted to the transfer agent is a critical first step in an intricate path.

The more sponsors, advisors and transfer agents are able to make investing in alternatives like investing in a mutual fund, the more mainstream alternative investments will become. The Covid-19 pandemic did a lot to accelerate the adoption of electronic subscription for private funds but the progress has been uneven. Sponsors and transfer agents have come a long way. When advisors consider the benefits of a faster, more accurate and efficient process for new investment data transmission to transfer agents and adopt straight-through processing a major operational obstacle for alternatives will be overcome.

For more information on straight-through-processing see our January 5, 2023 blog: Focus on Fundraising: Fund Administration and Straight-Through Processing