The Profit Potential of Your Transfer Agent Relationship
An experienced and well-equipped transfer agent that is truly aligned with management's goals can significantly increase the fund's ability to raise new capital.
We’ve discussed how utilizing a transfer agent can save you money in a variety of ways. It gets even better, though. In a variety of ways, a top-tier transfer agent organization can significantly boost fund management’s ability to make money. Your transfer agent partner is, of course, unable to introduce capital, suggest new investors or promote your investment product in any manner, being a neutral third-party provider of back-office services.
Even so, if your transfer agent provider has substantial experience, is well-equipped and is truly aligned with management’s goals, there are a number of ways your transfer agent infrastructure can significantly increase your ability to generate new capital.
So, where do you raise capital, and how might a transfer agent assist you in raising additional funds?
1. Existing Investors - How the Transfer Agent Experience Effects Reinvestments
Existing investors are the most likely of all to invest in a sponsor’s next fund, unless they had an unfortunate transfer agent experience. Management has built a rapport with these investors by informing them about the company’s business procedures and presenting them with the benefits of management’s knowledge in the form of positive returns on investment. The services of a transfer agent, however, are a key part of the investor experience. How has the transfer agent team performed on a daily basis? Have investors gotten their tax records in a timely manner? Is the financial reporting from the transfer agent transparent and understandable? Has your transfer agent team been prompt and courteous in responding to investor questions? Do investors have access to their account information through a transfer agent-provided modern web interface that meets their needs, provides important documents such as statements and tax forms and allows them to communicate effectively with management?
A transfer agent that cares about how investors perceive management will always give clear, accurate and complete information, respond to inquiries promptly and provide timely reporting and tax documentation. Investors gain a sense of confidence and satisfaction with their investment decision when transfer agent services are consistent, increasing their likelihood of participating in future funds with the same sponsor.
2. New Investors - How a Transfer Agent Can Assist You in Selling
To find new investors for your fund, you’ll need to know where to look. Insight comes from data that can be used to make decisions. Your transfer agent partner’s investor record-keeping system should be able to provide actionable data. This is, however, a rare occurrence. Only a few transfer agent firms have created technology that can provide comprehensive sales and marketing reports using data from the transfer agent system.
To maintain their clients’ investor databases, transfer agent firms utilize ‘investor record-keeping’ or ‘transfer agent’ systems. Because the alternative investment industry lacks a uniform record-keeping technology, transfer agent businesses have built or modified a range of system solutions to manage the back-office tasks of client fund sponsors. Some transfer agent systems have been altered from systems developed for publicly traded funds, which have quite different transfer agent requirements. Some are a tangle of systems that have been cobbled together in an attempt achieve all of the functionality they required for transfer agent processes. Some ‘transfer agent’ systems are just CRM systems that have been repurposed.
Only a few transfer agent systems are built specifically to administer specialized alternative investment funds from the bottom up. Even fewer transfer agent systems are capable of harnessing investor, advisor, sales and transaction data for reporting that provides relevant insights to the fund sponsor’s sales team in order to facilitate future sales.
Sales teams can discover new investor opportunities using a transfer agent system with reporting that reveals the most fertile ground highlighted by historical sales success. The reporting capability of an advanced transfer agent system reveals which financial advisers have the best track records, who are the most dependable and long-term investors, which geographies are the most fertile and who the top investors are. Management can gain valuable sales intelligence from a transfer agent system and deploy sales teams efficiently allowing them to raise more capital. Only a sophisticated transfer agent system with comprehensive reporting capabilities can transform transfer agent data into actionable sales data.
A transfer agent system can also aid sales by streamlining the new investment process. Transfer agent system connections to industry platforms such as AIP and DST FAN Mail, as well as connections to electronic subscription systems and direct digital inputs from client website subscription forms, bring alternative fund investing closer to the experience of investing in a mutual fund.
3. Financial Advisors - BDs and RIAs Have Preferred Transfer Agents.
The reputation of a transfer agent among financial advisors also helps with sales. Advisors seek easy interactions with transfer agent businesses with few errors and delays. They also appreciate the most efficient data flow and communication possible, which will result in faster admit dates. A transfer agent system’s connectivity is also critical. To enable investors and advisers have a better experience, broker-dealers, RIAs, wire houses, custodians, family offices, AIP, DST FAN Mail, and other industry participants should all have live digital connections to the transfer agent system. Corrections, clarifications and follow ups are all expedited by connectivity between industry participants and the system of the transfer agent services provider.
Financial advisers benefit from data homogeneity and real-time data transmission to and from the transfer agent, which eliminates inconvenient delays and uncertainty. A responsive, well-informed transfer agent firm capable of quickly resolving issues makes a positive first impression if a phone interaction is required. Advisors enjoy dealing with that transfer agent and, as a result, with the firm’s client funds. Sales will very probably benefit from the efficient attentive performance of the transfer agent.
4. Institutional Investors – The Most Demanding of All for Transfer Agents
High-quality outsourced transfer agent services are considered essential in the due diligence process for candidate funds by the largest investors: pension funds, endowments, and family offices. Many financial institutions believe that fund sponsors who employ in-house transfer agent teams run an unacceptable operational risk.
The Institutional Limited Partners Association (ILPA), a trade association for institutional investors, has the highest powered investors among its members. Because these investors want maximum transparency for their stakeholders, ILPA recommends that its members obtain financial reporting from their portfolio investment funds that follows the ILPA Reporting Template. The transfer agency partner for each fund must be able to put out a comprehensive reporting package that breaks out portfolio performance, compensation rates, costs, depreciation and every other line item and metric of the fund down to the smallest detail. This transfer agent reporting requirement must also include detailed reporting on the fund’s compliance with any and all portfolio investment limits and restrictions imposed on the institution.
Even for those transfer agents who are capable of creating the ILPA template, it is a time-consuming and resource-intensive process. The ILPA template is significantly beyond most transfer agents’ capabilities. If a fund wants to attract institutional investors, it will require an institutional-class transfer agent that knows how to reliably generate reporting that adheres to the ILPA template. Having a transfer agent provider with the reporting ability to qualify a fund for institutional money is a huge plus when it comes to fund raising.
The ability of management to provide a return on investment is what attracts investors to a fund. Fund management has the right to anticipate a return on its transfer agent services, a return of real monetary value that is greater than the mere performance of transfer agent tasks.
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