How a Fund Administration Provider Works for You

Innovative approach to fund administration and representing the priorities of fund administration in the major trade associations in the industry.


How a Fund Administration Provider Works for You

A fund administration partner is an integral part of the back-office procedure for investment funds issuing securities to investors. If your fund hasn’t yet issued shares but plans to do so soon, knowing the function of a fund administration provider is critical to understanding how important it is to have the services of a fund administration firm behind you. When considering the employment of a fund administration partner for your back-office needs, it’s crucial not to overlook the potential for unnecessary expense, embarrassment and operational risk if you decide in favor of using in-house staff. Third-party fund administration services represent efficiency, reliability and professionalism in the eyes of investors, advisors and others at every stage in the life of your fund. A fund administration provider is a valuable operational partner.

The Fund Administration Role

The fund administration role begins with the new investment process. Investors purchase shares in an investment fund which enable your acquisition of portfolio assets. These purchases can be made directly or via financial advisors. They may arrive in the form of paper documents or via electronic subscription systems. Regardless of how new investments are received, they must be meticulously recorded in a uniform format in a specialized fund administration system that allows for proper allocations, continued investor administration, payment of investor distributions and the production of tax forms.

A fund administration provider used to deal only with paper subscription documents from investors, purchasing their investment through a financial advisor. Today, fund administration firms increasingly have integrations with electronic subscription technologies that save time and money for the issuer and avoid errors of transcription to the fund administration system. 

Fund administration will:

  • Accept new investment subscriptions 
  • Keep track of who owns what, pay distributions to shareholders, and act as a mediator for the firm in all securities transactions
  • Serve as a liaison between the issuer and the investor
  • Keeping proper records of all securities issued by the fund
  • Provide online access to account information for investors and their advisors
  • Issue tax documents to investors

When working with investors, a fund administration partner is extremely vital for a private fund. Fund administration, when used in conjunction with a capitalization table, allows the fund to keep track of who their investors are and how much equity they have, which is useful in future rounds of investment. Transparency and availability of information boosts the investors’ confidence when both existing and potential investors may examine accurate and full fund administration information on the funds they are investing in.

The Complexities of Fund Administration

Knowing how many units or what percentage ownership each investor owns is crucial for an investment fund’s business but it is not always easy to figure out. A fund administration provider manages complexities fund managers may not have considered. Many funds sell ownership to new investors in units which are easier to sell and understand than equity ownership. Later, certain new investors may negotiate side letters or unusual investment provisions that change the allocation calculation for other investors, essentially converting units into equity, generating a significant level of complexity that should be left to a professional fund administration provider. Managing these calculations, producing statements and processing distributions based on the new allocations and effectively communicating fund activity to investors is a complex interlocking set of back-office tasks best left to a third-party fund administration partner.

The sensible option when selecting a fund administration partner for your fund is to choose the one that avoids the most unnecessary expenditures and time. This is the fund administration provider who possesses the best combination of three crucial characteristics.

  • Experience – Your fund administration partner should have a long history of administering a variety of fund types and asset classes including funds similar to your own. The firm should be an SEC registered transfer agent and have a process audit known as a SOC 1, Type II which examines the controls in place for service providers involved in financial transactions and financial reporting including fund administration providers.
  • Technology – A specialized fund administration system capable of housing all investor, advisor, transaction and historical data should be in place. The fund administration system should be connected directly with all relevant outside parties and be able to process all back-office functions without exporting data or manipulating data outside the system. The fund administration system should be integrated with the fund accounting system and an investor web portal and have reporting capability that gives you insight into the investor, sales and transaction activity of your fund. There should also be fund administration system integrations with electronic subscription platforms and industry data aggregators to give your fund the widest visibility and the broadest array of options in how you operate.
  • Customer Service – Your fund administration provider is your operational partner and your liaison with investors. Your fund administration team should provide responsive, personalized service. It should never be necessary to wait on hold for another department, leave a voicemail or wait a day or more for a response to an email. The customer service of your fund administration team represents you in interactions with investors, their financial advisors and others. Consider the reputation of your fund when considering the service approach of a fund administration provider.

There are subtleties to the back-office management of an investment fund that only a fund administration firm understands. Equity, debt, bonds, debentures, convertibles, options, warrants, promissory notes and other securities instruments must all be handled in specific ways by an experienced fund administration team. Crowdfunding represents an additional new challenge to the back-office that needs the experience of a fund administration firm.

Integrated Fund Administration Capabilities

Importantly, fund administration systems and services that can be easily integrated with other capabilities add a valuable level of efficiency and compliance. Fund accounting, tax document production, investor web portal, financial and sales reporting and the printing and delivery of statements and checks can all be integrated with the fund administration function. When services are integrated and bundled with a single fund administration provider costs are reduced, prompt performance is enhanced, compliance is simplified and data security is maximized.

Private funds can benefit greatly from the services of a fund administration partner. Managers can offload a challenging and fraught set of non-core functions while leveraging a thorough and accessible record of every aspect of the life of their fund. The ability to focus undistracted on investments and sales supported by professional fund administration services for back-office processes is a competitive advantage for any manager of private funds.

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