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

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 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.

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.