A Transfer Agent's Role in Your Fund

A competitive advantage for any private fund manager is the ability to focus on investments and sales without back-office distraction. Professional transfer agent services make this possible.


A Transfer Agent’s Role in Your Fund

A transfer agent is an important aspect of the back-office process for investment funds that want to sell securities to investors. Knowing the purpose of a transfer agent is key to understanding how important it is to have the services of a transfer agent behind you if your fund has not yet issued shares but aims to do so soon. It is important not to overlook the possibility for needless financial, reputational and operational risk if you elect to use in-house staff instead of a transfer agent for your back-office needs. At every step of your fund’s life, third-party transfer agent services mean efficiency, reliability and professionalism in the eyes of investors, advisors and others. A transfer agent is an important operational ally.

The Transfer Agent and New Investments

The role of the transfer agent comes in during the new investment procedure. During each round of funding, investors purchase shares in an investment fund, allowing you to acquire portfolio assets. These purchases can be made directly or with the help of a broker or financial advisor. Investment data may arrive in the form of paper documents or electronic subscription systems at the transfer agent. New investments must be scrupulously recorded in a uniform manner in a specialized transfer agent system that provides for proper allocation, continuing investor administration, payment of investor distributions and the creation of tax forms, regardless of the form in which they are received.


Previously, a transfer agent would offer paper certificates to investors indicating their ownership stake. The transfer agent is now expected to issue certificates digitally, saving the issuer both time and money. The transfer agent not only issues certificates, but also maintains records of who owns what, pays dividends to shareholders and acts as an intermediary in all securities transactions on behalf of the corporation. In this function, the transfer agent acts as a mediator between the issuer and the investor. The fund’s transfer agent is responsible for maintaining accurate records of all securities issued by the fund.

The Transfer Agent's Data Stewardship

A transfer agent is essential for a private fund when interacting with investors. A transfer agent allows the fund to keep accurate track of who their investors are and how much equity they own, which is useful in future rounds of investment. It’s critical for an investment fund’s business to know how many units or what percentage ownership each investor owns, but it’s not always straightforward to track.

Managers may not be aware of the complications of shareholder management that a transfer agent oversees. For example, many funds offer new investors ownership 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 alter the allocation calculation for other investors, thus transforming units into equity requiring recalculation of ownership, a level of complexity best left to a professional transfer agent. Managing these calculations, creating statements and processing dividends based on the revised allocations and properly communicating fund activities to investors are sophisticated back-office tasks, the specific expertise of the transfer agent partner.

What to Look for When Choosing a Transfer Agent Service Provider

When it comes to choosing a transfer agent for your fund, the sensible option is the one that saves you the most money and time. This is the transfer agent with the best combination of three important qualities.

  • Knowledge – Your transfer agent should have extensive experience managing a wide range of fund types and asset classes, including funds like to yours. The company should be an SEC-registered transfer agent and undergo a process audit known as a SOC 1, Type II, which assesses the controls in place for financial transaction and financial reporting service providers.
  • Technology – A specialized transfer agent system should be in place, capable of storing all investor, advisor, transaction and historical data. All relevant outside parties should be electronically connected to the transfer agent system and it should be able to conduct all back-office activities without exporting or modifying data outside the system. The transfer agent system should be integrated with the fund accounting system and an investor web portal and it should be able to provide reports that show you your fund’s investor, sales and transaction activities. Transfer agent systems should also be integrated with electronic subscription platforms and industry data aggregators to give your fund the most visibility and flexibility in how it operates.
  • Customer Service – Your transfer agent serves as both an operational partner and a point of contact for investors. Your transfer agent team should be quick to respond and provide individual assistance. Waiting on hold for another department, leaving a message or waiting a day or more for an email response should never be necessary. Your transfer agent’s customer service team represents you in interactions with investors, financial advisors and others. When deciding on a transfer agent’s service approach, think about your fund’s reputation.

The Transfer Agent and Your Competitive Advantage

Only a transfer agent understands the nuances of an investment fund’s back-office management. A skilled transfer agent knows how to handle equity, debt, bonds, debentures, convertibles, options, warrants, promissory notes and other securities instruments in specified ways. Crowdfunding adds a new complexity to the back-office that requires the expertise of a transfer agent.

Importantly, transfer agent systems and services that are simple to link with other capabilities improve efficiency and compliance. The transfer agent function can be integrated with fund accounting, tax document processing, investor web portal, financial and sales reporting and the printing and delivery of statements and checks. Costs are decreased, timely performance is improved, compliance is simplified and data security is optimized when services are integrated and bundled with a single transfer agent provider.

A transfer agent’s services can be extremely beneficial in professionalizing the back-office and controlling payroll costs. Managers can delegate a difficult and risky set of non-core duties while benefiting from a comprehensive and accessible record of their fund’s entire life cycle. A competitive advantage for any private fund manager is the ability to focus on investments and sales without being distracted by back-office activities with the help of a professional transfer agent partner

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