Case Study in Fund Administration – Private Investors in a Public Fund

Phoenix American’s solution-based mindset and system flexibility supports enterprising fund administration clients with the operational support they need.


By definition, a fund administration provider is an agnostic third-party entity that conducts back-office processes for an investment fund and services the needs of investors. Some companies are required to use a fund administration provider, or transfer agent, due to the nature of their registration with the Securities and Exchange Commission or because of investor requirements. Others are not required to use third-party fund administration but choose to  because back-office services relieve a burden for fund management and control payroll costs. A fund administration partner is in a position to act as an operational partner for fund management, intimately involved in management’s relationship with its investors.

For alternative investment funds, the choice of a fund administration partner can have operational repercussions that effect the strategic options for the fund. Not every strategy a fund manager may wish to pursue is operationally supportable within the experience, system capability or inclination of the fund administration partner. Many fund administration firms operate only within a limited and familiar field of capabilities and have experience and system capability only within that field. Most fund administration firms do not operate outside a narrow comfort zone. For ambitious and enterprising fund managers a broad-minded, client-oriented fund administration partner with system versatility is needed.

Phoenix American’s solution-based mindset and system flexibility supports enterprising fund administration clients with the operational support they need. In this case, we were able to craft a novel fund administration solution for a client which delivered the benefit of hundreds of additional investors, millions of dollars of additional capital and ongoing exposure to the otherwise unavailable alternative investment market.

The client is a nationally regarded real estate owner, operator and developer with more than $60 billion of projects. Their flagship investment product is a publically-traded preferred stock REIT serviced by a fund administration firm that services only publicly-traded investment products. However, the client designed the REIT to be an investment available on the publicly-traded market through NASDAQ and also for preferred shares (Series A) to be available to private investors through the advisor-assisted alternative investment market.

The problem: This hybrid model did not have a natural fund administration provider to service it. The client’s fund administration provider for the publicly-traded shares was not able to accommodate the investors in the Series A shares on its investor ledger. The data for the investors in the non-traded shares would be compiled via an entirely different distribution channel and in an entirely different format from that of the publicly-traded shares. The Series A investor data would be incompatible with the fund administration provider’s system requirements. Also, the Series A shares were never to be publicly traded so they had to occupy a discrete environment in the fund administration ledger, one where a public trade could never possibly occur. The fund administration firm involved could not provide a suitably bifurcated investor ledger environment. A solution would have to be found if both sets of investors were to be able to participate in the same fund.

The Solution:  Phoenix American leveraged the experience of its staff and the versatility of its fund administration systems to work with the client and their fund administration provider for the publicly-traded shares on a customized solution. It was elegant in its simplicity. As a fund administration provider for alternative investments, Phoenix American would hold an omnibus account for the Series A investors on the investor ledger of the publicly-traded fund administration firm. On the investor ledger, “Phoenix Transfer, Inc. as transfer agent and not as record owner” would appear in place of the hundreds of non-traded Series A shareholders participating in the fund with an omnibus balance representing the Series A investor holdings in aggregate. Phoenix American would administer the Series A preferred investors essentially as a sub-transfer agent and fund administration provider just for the private investors. The publicly-traded fund administration firm would make an omnibus distribution for the Series A investors to Phoenix American for subsequent allocation to those investors. All the Phoenix American fund administration services for alternative funds would be rendered for the Series A investors. The publicly-traded fund administration firm would service the rest of the investors accordingly. There would be two appropriately serviced fund administration environments on the investor ledger with no possibility of a publicly-traded transaction of the any of the Series A shares. This solution was implemented to the significant benefit of both the client and their investors. This arrangement had never been applied by a fund administration firm before. It effectively expanded the universe of distribution possibilities for investment fund sponsors.

The deep experience in fund administration services for alternative investments, the technological expertise and the dedication to problem-solving customer service made this solution possible. Phoenix American’s focus on the particular needs of every fund administration client, however they seek to do business, is unique among fund administration providers.

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