Leveraging Fund Administration for Reporting and Compliance

Fund Administration now requires multiple competencies and the need to assume a much broader role in supporting multiple functions within risk and portfolio management.


The Central Role of Fund Administration

The days when the role of a fund administration provider was limited to fund accounting and transfer agent processes are long gone. Fund Administration now requires multiple competencies and the need to assume a much broader role in supporting multiple functions within risk and portfolio management The increased sophistication of both investment funds and investors, as well as an increasingly demanding regulatory environment has forced fund administration to leverage its central role in the investment process to provide compliance and risk mitigation capabilities.

Fund Administration and Risk and Performance Reporting

The reason for fund administration’s expanded position beyond his traditional responsibilities is understandable. Fund accounting is a fundamental fund administration function. Because fund administration systems go through extensive checks during the Net-Asset-Value calculation process, these systems naturally have specific valuable information useful by other systems in the production chain outside of fund administration:

  • risk management
  • performance measurement
  • compliance
  • reporting
  • audit support

More and more, fund managers will need to rely on their fund administration provider to get the data required to complete other, non-fund administration, responsibilities. If the fund administration provider is able to take on some of these responsibilities in addition to the core fund administration role, so much the better. In any case, fund management will need the data only fund administration can provide in a trouble-free and safe manner to perform a variety of non-fund administration tasks, filtering and feeding pertinent data to more specialized systems and processes.

Few fund management firms can afford to utilize a separate portfolio management system provided directly with data independent of fund administration Doing so may be a good practice and allow for a comprehensive reconciliation but an advanced and capable fund administration provider with the necessary data already in-hand can perform these functions more efficiently in tandem with traditional fund administration functions.

Fund Administration Data for the Measurement of Performance and Risk Management

Although both of these areas are outside of the scope of administration, it is especially beneficial if the fund administration system “understands” risk and performance because it will allow it to feed other systems in an accurate, fast, and thorough manner.

An optimal solution would be for the fund administration system to provide direct risk and performance capabilities for fund management or for other outsourced providers’ specialized staff to utilize. This would eliminate the requirement for data sharing and reconciliation, as well as the cost and complexity of purchasing and maintaining separate systems.

Investment compliance is another topic that concerns both regulators and investors. At any given time, fund management must monitor the fund’s exposure against a variety of criteria outlined in the investment prospectus.

Fund Administration and Investment Compliance

Additional internal constraints are frequently imposed, which is a best practice. Fund administration systems contain the data to make this possible:

  • asset allocation based on geography
  • currency
  • instrument type
  • issuer
  • exposure based on value at risk
  • sensitivity to a number of risk variabls

Although the fund management has ultimate responsibility for adhering to such constraints, fund administration is usually in charge of checking compliance. As a result, the fund administration systems’ ability to monitor any limit structure in a timely and accurate manner is critical.

Many regulatory demands are beyond the capabilities of most fund administration systems. Rare in the industry, Phoenix American fund administration and fund accounting systems were designed and deployed with the regulatory requirements of client managers in mind.

Fund Administration and Reporting to Regulators

Regulatory reporting is becoming increasingly rigorous and complex. As a result, more specialized systems are usually tasked with producing regulatory reports. UCITS risk reporting, AIFMD reporting, Solvency, Transactions reporting under EMIR, MiFID, and other Directives are examples in the EU.

Nonetheless, given that all essential information is stored in the fund administration system, the most natural place to compile such a report should be the fund administration system itself. Unfortunately, it takes much too long for most fund administration systems to catch up to such demands.

Phoenix American pioneered the development of fund administration infrastructure, systems and services, that streamline compliance and reporting for client investment sponsors. Advanced, versatile systems and deep knowledge of evolving client reporting and compliance needs are at the core of our fund administration partnership offering. 

Communication with Investors and Management

Subscription and redemption forms, investor documentation and questionnaires on paper increasing things of the past for fund administration. Such error-prone and time-consuming fund administration processes in the modern era must be conducted electronically, with automated and robust workflows and audited procedures in place for each communication layer between the fund administration provider, investment manager, and investors.

Also, for both investors and managers fund administration must be able to create a variety of portfolio statements and monitor reports on demand, including those relating to completed transactions, valuation, performance, risk assessments, fees, and other topics. As a result, the fund administration system must be able to offer these in a personalized and secure manner

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