A Valuable Operational Ally for Private Equity and Venture Capital – Outsourced Transfer Agent Services

Many fund managers outsource transfer agent services so they can focus on their main capabilities: raising capital, acquiring assets and producing returns for investors


A Valuable Operational Ally for Private Equity and Venture Capital – Outsourced Transfer Agent Services

The wind is at the backs of emerging private equity and venture capital fund managers. Private equity and venture capital have become increasingly popular and the alternative investment sector as a whole is attracting more capital than ever before. And third-party transfer agent providers are now meeting the back-office needs of more offerings than ever before. There are many new transfer agents entering the space as a result but the best transfer agent companies have a long proven track record of high performance, strict regulatory compliance procedures and a commitment to transparency and customer service.

Emerging managers, spin-offs and first-time funds are now considered realistic options for many investors’ portfolios. Outsourced transfer agent services are regarded a critical component to have in an investment fund offering because these managers were previously thought to be too risky for conservative clients. Emerging managers must demonstrate that they not only have a compelling investing thesis but also the transfer agent and administration infrastructure to back it up, in order to take advantage of the critical opportunity of investor demand.

Transfer Agent Services: What Investors Expect

Investors conduct thorough due diligence on all facets of a firm’s operations. The need for a transfer agent has risen to the top of their priority list. How the fund is managed, how its performance is disclosed to investors and how compliance is attained are all essential elements for today’s investors. Failure to follow suitable professional transfer agent processes could mean the difference between getting a lot of investor referrals and not being able to raise enough money.

It takes a lot of effort to break away from a company and generate money for a new fund. Starting a new fund is a big enough lift. Taking on transfer agent processes need not be part of it. Emerging managers must grasp the expectations of investors, auditors and regulators, be realistic about the requirements and decide which responsibilities to delegate to service providers such transfer agents. Many new fund managers wisely opt to outsource transfer agent services purely so that they can focus on their main capabilities: raising capital, acquiring assets and provide strong returns to their investors. Transfer agent responsibilities are, after all, a time-consuming and complex set of processes that are heavily regulated and laden with specialized requirements and operational risks. Many transfer agent processes are too expensive and potentially fraught for an in-house transfer agent team to manage.

  • Data security and availability
  • Deliverable timeliness
  • Processing integrity
  • Interaction with wire houses, financial advisors, custodians and others
  • Confidentiality
  • Privacy policies
  • Disaster recovery
  • Business resumption
  • Data redundancy / Offsite backup
  • Document management
  • Audit preparedness

All of these compliance features and service capabilities are standard with transfer agent providers and they come at a fraction of the expense of hiring and training in-house transfer agent staff. Full-service transfer agents offer additional operational services such fund accounting, reporting and investor services, allowing you to outsource nearly all back-office tasks.

Transfer Agent Systems Designed for Alternative Investments

Third-party transfer agent firms use technology systems designed specifically for alternative investment fund transfer agent activities to manage investor and transaction data, partnership transactions, track investor activity and investor capital accounts. When funds reach a certain size, specialized technology becomes essential for sufficient speed and accuracy in all transfer agent activities. A transfer agent system that is coupled with fund accounting software can pull data straight from the general ledger for customized reporting to investors, management, auditors and other third parties.

Using an integrated web portal, investors and their financial advisors can get reports, papers, statements, tax forms and alerts as well as transmit queries and requests to management. CFO portals and file transfer protocol (FTP) connections can be provided by transfer agents to streamline duties within the transfer agent team, as well as electronic subscription integrations and data rooms to aid prospective investors and streamline the new investment process. A transfer agent partner will have its own IT staff that administers, maintains and improves the technology that helps clients handle their funds. Outsourcing transfer agent functions is a good business move for investment funds because of the economies of scale and concentration of industry operating knowledge transfer agents offer.

Services Centered on the Customer

Advanced and successful transfer agency organizations pride themselves on providing high-touch customer service. The average client tenure of the transfer agent demonstrates the transfer agent’s dedication to customer satisfaction. A good transfer agent company will have a wide range of asset class knowledge as well as client account managers that have worked with a wide range of fund structures and levels of complexity. Different transfer agent processes are required for real estate investment trusts, debt funds, small business investment company (SBIC) funds, buyout funds, venture capital, oil and gas partnerships and funds of funds. Transfer agent businesses that work with a range of fund types can share the operational efficiency, reporting solutions and compliance procedures that they’ve built over time with their other transfer agent clients, allowing all clients to profit from their knowledge.

Client interactions with their transfer agent partner should be handled by a familiar account support team that is familiar with the client’s assets and can anticipate daily client demands. Working with a high-quality, service-oriented transfer agent service provider should feel like working with a hand-picked in-house staff.

The Reputation of the Transfer Agent Company

Managers considering a partnership with a transfer agent firm should look for current clients who are willing to provide references attesting to the transfer agent’s expertise and dependability. The internal rate of service staff turnover reveals the level of morale and cohesion within a transfer agency firm. A transfer agent’s reputation among financial advisors, custodians, wire houses and other industry participants is also important.

The Services of a Transfer Agent Can Be Customized

Based on a review of the terms of the client’s limited partnership agreement (LPA) or private placement memorandum (PPM), a transfer agent provider should be able to determine a new client’s particular transfer agent and administrative needs. Software and services provided by transfer agents should be flexible enough to meet their needs while also complimenting the client’s preferred process. To promote the client’s brand, a transfer agent partner should tailor reporting, statements, checks, the investor web portal and other industry and investor-facing deliverables.

The top transfer agent firms will also be able to perform fund accounting, capital calls, proxies, financial and sales reporting, investor services and tax document preparation for client companies, to name just a few critical back-office activities. Any transfer agent firm should be able to meet Anti-Money Laundering (AML), Know-Your-Customer (KYC), Office of Foreign Assets Control (OFAC), Foreign Account Tax Compliance Act (FATCA) requirements and other government screening criteria.

If a transfer agency offers fund accounting as part of a package of services, the fund accounting team should be aware of the Institutional Limited Partner Association (ILPA) reporting standard and capable of generating institutional investor reporting that adheres to it. Many transfer agent fund accounting groups lack the system capacity to provide this large and comprehensive data package.

Expertise in the Alternative Investment Transfer Agent Space

A transfer agent company should be familiar with all types of private capital fund structures as well as onshore and offshore transfer agent requirements, client interaction and collaboration with other vendors and various industry entities. A consultative transfer agent firm will be able to recommend high-quality vendors and suppliers as well as help with vendor alignment that is both effective and efficient.

Working with a third-party transfer agent service can help you learn a lot about effective operations and avoid a lot of mistakes. By allowing clients to focus on what they do best, professional transfer agents can help them achieve essential efficiencies, minimize operational costs and improve their performance as managers.

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