Case Study in Transfer Agent Services – Private Investors in a Public Fund

Phoenix American's solution-based mindset and system flexibility provide the operational solutions that innovative investment fund sponsors want.


Case Study in Transfer Agent Services – Private Investors in a Public Fund

A transfer agent, by definition, is a neutral third-party entity that facilitates the transfer of a company’s securities from one investor to another. Because of the nature of their Securities and Exchange Commission registration, some corporations are compelled to hire a transfer agent. Others are not obligated to utilize a transfer agent, but choose to do so since they provide extra back-office services in addition to the transfer agent duty. The transfer agent is in a position to function as a company’s operational partner being intimately involved in the company’s investor data and interactions with the investors.

The Limitations of Some Transfer Agents

The choice of a transfer agent partner for investment fund companies might have operational ramifications that affect the fund’s strategic priorities. Not every strategy a fund manager might want to pursue is operationally feasible given the transfer agent’s experience, system capabilities or operational preference. Many transfer agents function just within a narrow and well-established range of capabilities, and have only that level of experience and system competence. A broad-minded transfer agent with system versatility is required for ambitious and opportunistic fund managers.

Phoenix American’s solution-based attitude and system flexibility provide the operational assistance that innovative transfer agent clients want. In this situation, we were able to create a unique transfer agent solution for a client that resulted in hundreds of new investors, millions of dollars in additional committed capital and continued access to an otherwise unreachable alternative investment market.

A Challenge to the Transfer Agent

The transfer agent’s client is a well-known real estate owner, operator, and developer with a portfolio worth more than $60 billion. A publicly-traded preferred stock REIT is their flagship investment product, which is serviced by a transfer agent that handles only publicly-traded investment products. The client intended for the REIT to be a publicly traded investment on NASDAQ but featuring preferred shares (Series A) to be offered to private investors through the advisor-assisted alternative investment market.

The issue was that this hybrid model lacked a natural transfer agent supplier to support it. On its investor ledger, the client’s transfer agent for publicly-traded shares was unable to accommodate the investors in the Series A shares. The transfer agent data for non-traded share investors would be compiled through a separate distribution channel and in a different format than the data for publicly listed shares. The transfer agent’s technology would be incompatible with the Series A investor data. Furthermore, because the Series A shares were never to be publicly-traded, they were to be kept in a separate environment in the transfer agent ledger away from the possibility of a public exchange. The transfer agent was unable to provide an appropriately segregated investor ledger environment. If both sets of investors wanted to invest in the same fund, a solution would have to be developed.

A New Role for the Transfer Agent

The Solution: Phoenix American used its staff’s experience and the versatility of its technologies to develop a tailored solution with the customer and their transfer agent for publicly listed shares. In its simplicity, it was effective easily implemented. Phoenix American, as an alternative investment transfer agent, would keep an omnibus account for Series A investors on the publicly-traded transfer agent’s investor ledger. The hundreds of non-traded Series A shareholders participating in the fund would be replaced on the investor ledger by “Phoenix Transfer, Inc. as transfer agent and not as record owner,” with an omnibus balance indicating the Series A investor holdings in aggregate. Phoenix American would act as a sub-transfer agent for the Series A preferred investors.

The publicly listed transfer agent would make omnibus payouts to Phoenix American on behalf of the Series A investors. Phoenix American would make distributions to the Series A investors. All of Phoenix American’s transfer agent services would be provided to Series A investors. The rest of the investors would be served by the publicly-traded transfer agent. Within the investor ledger, there would be two appropriately serviced groups of transfer agent client investors with no chance of a publicly traded transaction of any of the Series A shares. Both the client sponsor and their investors benefited greatly from the implementation of this solution. This was the first time a transfer agent had utilized this structure. It effectively broadened the scope of investment fund sponsors’ sales distribution options.

Versatile Transfer Agent Solutions

This solution was made possible by a combination of substantial experience in transfer agent services for alternative investments, technological knowledge and a commitment to problem-solving customer care. Phoenix American is unique among transfer agent providers in that it focuses on the specific needs of each transfer agent client fund regardless of how they choose to do business.

Learn why industry leaders trust us for their back office

Let’s discuss how Phoenix can elevate your investor experience