The strictest definition of a transfer agent is a neutral third-party organization that enables the transfer of a company’s securities from one investor to another. Due to the requirements of their Securities and Exchange Commission registration, some funds are required to engage a transfer agent. Others may choose to do so even if they are not compelled to do so because transfer agents frequently offer extra back-office services in addition to their core duties. Due to their intimate involvement in the company’s investor data and industry relationships, transfer agents 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 effects that change the fund’s strategic goals. Not every approach a fund manager might desire to employ is practically feasible given their transfer agent’s experience, system capabilities and operational preference. Many transfer agencies are constrained to a condensed set of capabilities that are determined by their level of experience and the features 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 owner, operator and developer 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 would not work within the transfer agent’s system technology criteria.

The investor information for the Series A shares would also need to be kept separate from any potential public trading in the transfer agent system. The private shares could never be traded publicly. The investor ledger environment utilized by the transfer agency could not be configured to accommodate this bifurcated investor roster. The transfer agency believed the arrangement to be operationally impracticable 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 renowned pioneer in transfer agent solutions for the non-traded fund industry, was contacted by the client’s transfer agency. 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 agency’s investor ledger. The hundreds 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 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. All transfer agent services offered by Phoenix American would be available to the Series A investors. The shareholders of the publicly traded shares would be served by the publicly-traded transfer agent. There would not be any chance for any Series A shares to be traded publicly. The investor ledger would contain two well-serviced but separate 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 increased 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.