The key role and main responsibilities of a fund administrator

Typically, fund administration comprises two core components: fund accounting and investor services (also known as transfer agency). So typically, a fund’s administrator will take care of all its accounting requirements, such as maintaining full accounting and portfolio records, NAV calculation, fee calculations and financial statement preparation.

In addition, the fund administrator handles investor onboarding, subscriptions and redemptions and tracks all investor interests in the fund, ensuring that investors receive regular updates on their holdings and giving them more confidence that their funds are well managed and protected.

The administrator will also ensure the official books and records of the fund are maintained to the required standard, will assist with the annual audit, arrange meetings of investors and directors, administer the fund’s bank account and monitor and pay fund expenses.

The outsourcing trend and the key drivers behind it

Reliable fund administration is key to a successful investment platform; as a vital middle and back-office service, it facilitates the smooth daily operation of a fund.

Following the rapid growth of the fund industry, especially in the private equity and real estate space, many investment managers have been choosing to outsource their back-office fund administration function due to external pressures and internal operational challenges. For example, a large number of fund managers are now realizing that self-administering and doing everything in-house can consume valuable internal resources.

In addition, the ever-changing regulatory landscape, increasing investor demands and rapidly evolving use of technology are additional factors towards outsourcing in the fund administration industry.

Surge of regulations and reporting

With the implementation of the Alternative Investment Funds Managers Directive in 2013, the Foreign Account Tax Compliance Act, the Common Reporting Standard and more recently the implementation of the EU SFDR sustainability regulations in the financial services sector, fund managers are realizing that additional resources are required to remain compliant, and that independent third party fund administrators with specialist staff are best placed to alleviate the burden and mitigate the risk of staying on top of this ever-changing environment.

Meeting investor demand and concentrating on core competencies

By not having the distraction of overseeing back-office functions, fund managers are able to concentrate solely on their core competencies of investment analysis and selection, and investor relations.

Furthermore, institutional investors are demanding for independent fund administrators to be appointed in order to provide independent investment valuations and customized reports.

Costs, economies of scale and efficiency

Fund managers with existing back-office teams are faced with time consuming, non-revenue earning responsibilities that require specific office space, IT support, human capital and continuous training.

Outsourced solutions are often regarded as expensive, but the overall costs are likely to be materially lower as the administrator is able to leverage the economies of scale that arise from servicing other funds.

In addition, fund managers can utilise the expertise of the third-party administrator and their experience in the administration of multiple funds for different clients to gain access to the latest fund analysis and reporting technology at a lower cost compared to implementing it themselves.

Technology

Investors are increasingly requiring customized portfolio statements and direct access to data. Whilst in the past, fund accounting may have been managed in Excel, today, it’s all based around complex data management, run on specialist fund administration software. Modern fund administration platforms allow data of fund structures to be tracked at each level, from the original fund through all the underlying portfolio companies.


Fund managers can enjoy the benefit of using these systems through the third-party administrators, saving themselves from the costly investment and time consuming implementation, training and maintenance of in-house technology. These cost savings can then be passed on to the fund's investors.

Careful consideration

Whilst there are a number of clear merits in outsourcing the back-office functions, it is equally important that fund managers take such decisions carefully.

It is important that when a fund manager decides to outsource, there is a clear separation of duties and functions as to what they wish to retain internally and what exactly they prefer to outsource. If the decision is ultimately to proceed with an outsourced model, the fund manager should examine the third-party administrator’s policies, procedures and technology. As fund management and fund administration go hand in hand, it is of vital importance that there is a like-minded business behavior, beliefs and values between the fund manager and the administrator.

To find out how we can help you with any outsourcing requirements, please contact:

Christina Economou
Business Development Director, Cyprus
E: [email protected]
T: +357 258 20 650