Introduction to Transfer Agents Services for Private Equity and Venture Capital Funds

A transfer agent is a third party that transfers securities from one investor to another but the role is often expanded to a variety of additional back-office activities for an investment fund.


Introduction to Transfer Agents Services for Private Equity and Venture Capital Funds

A transfer agent is technically a third-party firm that handles the transfer of securities from one investor to another. Often, in the case of investment funds, the role is expanded to cover various other back-office activities. A transfer agent services provider’s obligations vary depending on a fund’s business needs and industry area (private equity, venture capital, hedge fund, etc.). A transfer agent is often involved only in the investor services side of back-office functions but in the more expanded role of some transfer agents duties may include fund accounting, financial reporting, sales team support and other needs of the fund sponsor.

Some of the Back-Office Functions of a Transfer Agent

The following are among potential transfer agent services:

  • Tracking shareholder information
  • Meeting the demands of investors
  • New investment Entry
  • Transaction processing
  • Payments to investors in the form of dividends and distributions
  • Interactions with financial advisors, custodians, and other third parties
  • Adherence to government guidelines
  • Tax document production and delivery
  • Capital call processing
  • Proxy vote management

The Benefits of Using an Outsourced Transfer Agent

Why don’t funds operate as their own transfer agent? Some do, but managers of investment funds have a lot on their plates. They typically lack the time, ability or technological platforms required to perform day-to-day transfer agent activities effectively. These are specialized, detailed and precision functions. Professional transfer agent services are necessary to execute the task entirely and correctly. Organizations that outsource transfer agent duties to specialized organizations profit from a productive division of labor in which both sides contribute from their areas of expertise. The difficulty and expense of acquiring, training, and managing in-house transfer agent teams is also avoided for fund managers. Cost efficiency is achieved without the risk of overstaffing or understaffing within an in-house transfer agent team because third-party transfer agent services are scaled to the fund’s needs.

Most importantly, a transfer agent partnership allows fund management to concentrate on sales and assets without the distraction or risk of managing transfer agent functions.

Providers Qualified to Act as Transfer Agents

To reach the standards of a top-tier transfer agent services provider, several compliance, due diligence and audit requirements must be met. These standards are far from easy to meet. They can mean the difference between a successful transfer agent client fund and unwanted difficulty with the SEC. Two significant qualifications to look for in a transfer agent are that the firm is an SEC registered transfer agent and that the firm’s transfer agent processes are subjected to a SOC 1, Type II audit of their process controls on a regular basis (at least yearly). The SOC audit is a certification of procedures carried out by an independent auditor for organizations whose processes affect financial transactions or reporting for clients.

Connectivity of the Transfer Agent's Systems

Transfer agent firms must be able to interface with custodians, wire houses, broker-dealers, registered financial advisors and data aggregators in order to transmit and receive data in forms that are specific to each. The efficiency of the transfer agent service provider is maximized by a transfer agent system that supports this cooperation with real-time digital links to all of these parties.

Compliance Capabilities of the Transfer Agent

Anti-Money Laundering (AML) and Know Your Customer (KYC) policies exist to make certain businesses have a clear idea of who their customers are. These protections serve to ensure that there are no negative actors or illegal acts.

When it comes to meeting compliance regulations, investment funds have several investor-related oblications. Transfer agents are in a unique position to fulfill this responsibility for client funds, ensuring that investors are properly identified, accredited and verified. To streamline the process, a transfer agent services provider should have experience with regulatory compliance and automated processes in their transfer agent systems to facilitate compliance. Some advanced transfer agent systems are able to check for Office of Foreign Assets Control (OFAC) and Foreign Account Tax Compliance Act (FATCA) compliance as well.

Fund managers should ensure that a transfer agent services provider understands these regulations as failure to do so can be costly. Numerous processes must be implemented by transfer agents to ensure the identity and qualification of investors in client funds. The ability of the transfer agent to meet these objectives is critical to the health and sustainability of any investment fund.

Specialized Technology for Alternative Investment Transfer Agents

Another component of the transfer agent services puzzle is the technology demands required to allocate and distribute funds, prepare investor tax records, compute net asset values and equip managers with insights into their assets and investor actions.

Writing with a pen and paper is a thing of the past. To complete transfer agent services chores and report on fund activity, transfer agents now use automated, less labor-intensive transfer agent software solutions.

STAR-XMS, Phoenix American’s proprietary shareholder record keeping / transfer agent system, is an example of a modern transfer agent system. All transfer agent functions are centralized and streamlined with STAR-XMS, which stores all investor data, sales and transaction history, broker information and original documents. The system also connects the central transfer agent database to all alternative investment sector players enabling real-time data transmission to update records, address issues and assist data aggregation.

A transfer agent provider is the operational partner you want for your fund if advanced transfer agent technology, many years of industry-specific experience and a commitment to individualized customer care characterize their offering.

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