Private Investors in a Public Fund - A Case Study in Transfer Agent Innovation

The operational solutions that innovative fund sponsors require is provided by Phoenix American's solution-based mindset and system adaptability.


Private Investors in a Public Fund – A Case Study in Transfer Agent Innovation

A transfer agent is a neutral third-party entity that facilitates the transfer of a company’s securities from one investor to another That is the strictest definition of a transfer agent. Some corporations are required to hire a transfer agent due to the nature of their Securities and Exchange Commission registration. Others are not required to use a transfer agent, but do so because transfer agents often provide additional back-office services in addition to the transfer agent function. The transfer agent is in a unique position to serve as a company’s operational partner, as they are closely involved in the company’s investor data and interactions with the industry.

Many Transfer Agents Have Limitations

An investment fund’s selection of a transfer agent partner may have operational repercussions that affect the fund’s strategic aims. Given the transfer agent’s experience, system capabilities and operational preference, not every strategy a fund manager might want to pursue is operationally practicable. Many transfer agents are limited to a small and well-defined set of capabilities defined by their experience and the limitations of their transfer agent system. For aggressive and opportunistic fund managers, a broad-minded transfer agent with system versatility is necessary.

The operational solutions that innovative fund sponsors require are available at Phoenix American because of our solution-based mindset and transfer agent system adaptability. In this case, we were able to develop a one-of-a-kind transfer agent solution for a client fund, resulting in hundreds of new investors, millions of dollars in additional committed capital and ongoing access to a previously inaccessible field of investors for a publically traded fund.

A Test for the Transfer Agent

The Problem: A well-known real estate owner, operator and developer with a portfolio worth more than $60 billion decided to sponsor a new real estate investment fund and engaged a well-known transfer agent for operational support. The investment product was a publicly traded preferred stock REIT to be listed on the NASDAQ exchange. However, the fund sponsor wanted preferred shares (Series A) of the fund to be available to private investors through the advisor-assisted alternative investment market.

This hybrid model didn’t have a natural transfer agent provider to back it up. The client’s transfer agent for publicly listed shares was unable to accommodate the investors in the Series A shares on its investor ledger. Non-traded share transfer agent data would be compiled through a different distribution channel and in a different format from data for the publicly traded shares. The Series A investor data would be incompatible with the requirements of the transfer agent’s system technology.

Furthermore, because the Series A shares could never be exchanged publicly, the investor data for those shares would have to be held in a different environment in the transfer agent system, segregated from any potential for a public trade. The transfer agent was unable to provide an investor ledger environment that was suitably configured. The client’s fund formation document allowed both sets of investors to participate in the fund but the transfer agent, lacking the system capability to service such a structure, considered the arrangement operationally impractical. An innovative solution would have to be devised if both private and public investors would be able to invest in the same fund.

The Transfer Agent in a New Role

The Solution: The client’s transfer agent reach out to Phoenix American, a recognized innovator in transfer agent solutions in the non-traded fund space. Given the experience of the Phoenix American staff and the versatility of the company’s transfer agent system technology a customized solution for the non traded Series A shareholders was devised working with the customer and their transfer agent. It was simple, effective and easy to implement. On the publicly-traded transfer agency’s investor ledger, Phoenix American, as an alternative investment transfer agent, would appear as an omnibus account for Series A investors. “Phoenix Transfer, Inc. as transfer agent and not as record owner” would represent the hundreds of non-traded Series A shareholders participating in the fund on the investor ledger, with an omnibus balance representing the Series A investor holdings in aggregate. For the Series A preferred investors, Phoenix American would function as a sub-transfer agent.

For the benefit of the Series A investors as a whole, the publicly traded transfer agent would make omnibus payments to Phoenix American. The Series A investors would then receive distributions from Phoenix American. Series A investors would have access to all of Phoenix American’s transfer agent services. The publicly traded transfer agent would serve the investors in the publicly traded shares. There would be two appropriately serviced groups of transfer agency client investors in the investor ledger, with no possibility of a publicly traded transaction of any Series A shares. The deployment of this solution benefited both the client sponsor and its investors. This was the first time this structure has been used by a transfer agent. It effectively expanded the range of sales distribution alternatives available to investment fund sponsors.

Client Oriented Transfer Agent Innovation

This solution was made possible by a combination of extensive experience in alternative investment transfer agent services, technological expertise and a dedication to problem-solving on behalf of clients. Phoenix American is different from other transfer agent providers, focusing on the individual needs of each transfer agent client fund and how they prefer do business.

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