Transfer Agent Services 101 - An Introduction for Private Equity and Venture Capital Funds

Advanced technology, years of industry-specific experience and a commitment to customer service is what makes a transfer agent provider the operational partner you want for your fund.


Transfer Agent Services 101

An Introduction for Private Equity and Venture Capital Funds

A third-party firm that handles back-office activities for an investment fund and operates as an intermediary between fund managers, investors, financial advisers, auditors and other participants and verifies and manages the distribution of investment assets is known as a transfer agent. 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, strictly speaking, is an entity tasked with facilitating the transfer of a security from one party to another. The work of a transfer agent is often expanded, however, to cover a variety of back-office activities for an investment fund.

The Duties of a Transfer Agent

Transfer agent services generally include the following:

  • Management of the shareholder database
  • Responding to the needs of investors
  • New investment and transaction processing
  • Dividend and distribution payments to investors
  • Communications with financial advisors, custodians, etc.
  • Compliance with government regulations
  • Preparation of tax documents

The Advantages of Outsourced Transfer Agent Services

Why don’t funds do their own transfer agent services? Fund managers have a lot on their plates. They usually don’t have the time, ability, or technology platforms necessary to conduct day-to-day transfer agent tasks on their own. These are detailed, precision-oriented and specialized functions. To be done completely and correctly, professional transfer agent services are required. Organizations that outsource transfer agent functions to experienced companies that specialize in the field benefit from an efficient division of labor in which both parties contribute from their core competencies. Fund management is also spared the complexity of hiring, training and maintaining in-house transfer agent staff. As third-party transfer agent services are scaled to the needs of the fund, cost efficiency is achieved without the potential for overstaffing or understaffing within an in-house transfer agent team.

Above all, partnering with a transfer agent allows fund management to offload the distraction and risk of transfer agent and other back-office functions in order to concentrate exclusively on sourcing investors and acquiring and managing assets.

Qualified Transfer Agent Service Providers

There are numerous compliance, due diligence, and audit requirements that must be met in order to meet the standards of a top-tier transfer agent services provider. These regulations are far from simple. They can mean the difference between transfer agent client funds thriving and landing in hot water with the SEC. Two important qualifications to look for in a transfer agent are 1. That the firm is a SEC registered transfer agent and 2. The the firm

S transfer agent processes are regularly (at least annually) subject to a SOC 1, Type II audit of the process controls. The SOC audit is an independent auditor’s certification of procedures conducted by companies whose processes effect financial movement or reporting for clients.

Transfer Agent System Connectivity

To operate effectively, transfer agent firms need to be able to communicate with custodians, wire houses, broker-dealers, registered financial advisors and data aggregators delivering and receiving data in formats customized to each. A transfer agent system that facilitates this cooperation with live digital connections to all these participants maximizes the efficiency the transfer agent services provider is able to provide.

Transfer Agent Compliance Capabilities

Anti-Money Laundering and Know Your Customer (AML/KYC) requirements are in place to ensure organizations have a clear picture of their consumers. These safeguards help to ensure that no bad actors or illegal acts take place.

Investment funds must meet these and several other  compliance requirements with regard to their investors.  Transfer agents are uniquely positioned to fulfill this obligation for client funds to ensure that investors are appropriately screened, accredited and vetted. A transfer agent services provider should have experience with regulatory compliance and automated processes in their transfer agent systems to streamline the process. Advanced transfer agent systems can also screen for compliance with Office of Foreign Assets Control (OFAC) and Foreign Account Tax Compliance Act (FATCA) regulations.

Fund management should make sure that a transfer agent services provider knows how to comply with these regulations as failure in this area can be costly. Transfer agents must put in place numerous mechanisms to ensure the identity and qualification of the investors in client funds. Any investment fund’s health and longevity are dependent on the ability of the transfer agent to meet these demands.

Transfer Agent Technology

The technological demands required to allocate and distribute funds, produce investor tax documents, calculate net asset values and provide managers with insights into their assets and investor activities are another piece of the transfer agent services puzzle.

The days of writing with a pen and paper are long gone. Transfer agents now use automated, less labor-intensive transfer agent software to fulfill transfer agent services chores and report on fund activity.

Modern solutions to the transfer agent process include tools like STAR-XMS, Phoenix American’s proprietary shareholder record keeping / transfer agent system. STAR-XMS centralizes and streamlines all transfer agent functions and manages all investor data, sales and transaction history, broker information and original documents. The system also connects the central transfer agent database for client funds to all the participants in the alternative investment industry for instant transmission of data to update records, resolve issues and support the data aggregation of industry platforms.

Advanced transfer agent system technology combined with many years of industry-specific experience and a commitment to personalized customer service is what makes a transfer agent provider the operational partner you want for your fund.

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