A bank, a trust firm, a stand-alone transfer agent provider or a team within a corporation or investment fund operating as the company’s own transfer agent are all examples of transfer agents. Without the licensor being the ‘transfer agent of record,’ an in-house team can license a transfer agent system to improve their own efficiency. Even if it is not required, many investment funds use a third-party transfer agent. The due diligence requirements of sophisticated and institutional investors are satisfied by having a third-party ‘transfer agent of record.’
In the past, transfer agents generally played a minor role in the private investment fund industry. An SEC-registered transfer agent was necessary for funds that were publicly registered with the SEC. These were usually big funds with tens of thousands of unaffiliated investors. Private funds (private equity, venture capital and private real estate funds), on the other hand, often had fewer investors and were not subject to as much regulation, hence they did not require a transfer agent. However, private equity fund investor numbers have risen in recent years, investor-related regulatory requirements have been implemented and fee compression and cost pressures have forced more private equity firms to engage transfer agents. As a standard of operational professionalism, sophisticated investors and organizations such as pension funds now demand an investment fund under consideration engage a transfer agent.
A Service Organization Control (SOC) audit reviews transfer agent processes to ensure that the systems and procedures in place are accurate and dependable. To meet their due diligence requirements, many fund companies will request an annual SOC audit of their transfer agent.