Fund administration, an industry that has grown significantly over the years, is worth USD8 billion to USD 12 billion. That was magnified in the aftermath of the 2008 global recession, as more alternative investments soared to popularity. These investments included hedge funds, real estate, fund of funds, mutual funds, pension funds, private equity and venture capital. This fund inflow in the said sectors brought more business to the fund administration industry.

What is fund administration? 

Fund administration is an outsourced service where the provider executes middle-office and back-office functions. Fund administrators independently verify the fund assets and valuation under a manager’s portfolio.

Fund administrators provide administrative solutions to asset and fund managers. In doing so, the managers have more time and space to focus on portfolio growth and management.

Below is an overview of the functions of a fund administration service provider.

• Processing of trade and related transactions
• Processing of withdrawals, transfers and switches
• Processing of daily corporate action
• Preparation and maintenance of book of accounts (via external record compilation and verification, portfolio pricing, net asset value calculation and expense accrual calculation)
• Processing of client (investor) documentation
• Preparation and maintenance of documents like investor register
• Trade and position break reports
• Ad-hoc trades and position activity reports
• Preparation of financial statements
• Preparation of regulatory reporting
• Profit and loss reporting
• Tax reporting
• Computation of track investments
• Computation of performance fees
• Calculation of the net asset value (daily, weekly, monthly)
• Distribution of dividends
• Distribution of investor statements and communication
• Tracking of return of capital and return rates
• Provision of share registrar and transfer agent

Apart from these functions, fund administration firms also provide fund formation solutions. This specific service includes:

• Expert consultation on the ideal type of fund structure to be set up
• Drafting of constitutional documents for the fund
• Corporate services, such as bank account opening, brokerage accounts, tax registration and business registration, including obtaining security identifiers

Bolder Group’s fund administration solutions also comprise legal services to help its clients in the organisation of board and shareholders meetings where and when required, submission of reports, preparation of statutory documents, review of corporate legal documents and assistance in liquidation and re-domiciliation. Our fund administration firm has an in-house team of legal experts from all over the world.

Compliance is also a core part of a fund administration service. With the increasing and more complex regulatory requirements in different jurisdictions (especially in major financial hubs), fund managers should take advantage of the compliance solutions offered by third-party fund administration specialists.

Non-compliance with regulatory frameworks may result in consequences for the investors and managers, as some nations consider non-compliance (especially with AML laws) a criminal offence.

Fund administration also includes know-your-customer and anti-money laundering compliance services through the appointment of an anti-money laundering officer and the following:

• Establishment of internal AML protocols
• Set up of a sanctions list for screening purposes
• Maintenance of systems that identify person, activity or country risks
• Application of a risk-based approach in monitoring financial activities

The abovementioned are the composition of a traditional fund administration service. However, with the rise of digital assets, fund administration expanded to servicing cryptocurrency funds. Due to its digital nature, crypto fund administration relies on technology. Crypto fund administration service includes the following:

• Crypto fund set-up and launch
• Processing of transactions through exchange ledger and wallets
• Preparation of books of accounts
• Computation of interest charge
• Calculation of profit and loss
• Reconciliation of hot/cold wallet transactions
• Compliance and reporting services as required by regulations

Fund administration: Assets in focus

Specific fund administration solutions differ based on the type of fund structure. There are different types of assets for which administrators provide fund services. Bolder Group, for example, arranges administration for hedge funds, PE and VC funds, crypto funds, real estate funds, managed accounts and fund of funds.

Amongst these, the basic services are reporting and compliance solutions, tracking of investments and NAV calculations. If a fund administration firm offers end-to-end solutions, it can assist in fund setup and legal and corporate matters.

Hedge funds

Third-party hedge fund administrators oversee about 80 per cent of all hedge fund assets under management worldwide, according to PwC. Hedge funds gained popularity in the 1990s and steadily grew until the 2008 financial crisis, recovering only in 2013. Data from Statista shows hedge funds are valued at USD4.5 trillion in Q32021; the largest share of hedge funds are represented by hedge fund managers in the US, presenting a massive opportunity for administration firms in the country.

Hedge fund administration is poised to grow in the coming years as more regulatory reporting is required from managers and investors. These directives include the Alternative Investment Fund Managers Directive of the European Union and the USA’s Form PF.

PE and VC funds

PE and VC fund administrators assist clients with portfolio and SPV accounting, payment services, audit and tax support, waterfall, capital distribution, compliance requirements, etc.

Increasing and stronger regulations in PE and VC funds have also presented more responsibilities to managers and investors. In the US, for example, the Securities and Exchange Commission proposed new amendments to the Investment Advisers Act of 1940 to underscore the transparency and efficiency of the sector, which, according to the SEC is valued at USD18 trillion.  

‘Private fund advisers, through the funds they manage, touch so much of our economy. Thus, it’s worth asking whether we can promote more efficiency, competition, and transparency in this field’, said SEC chair Gary Gensler.

On the other hand, figures from data analytics firm Factset showed that about USD$612 billion in VC funds were invested in 2021 worldwide – more than double the figures in 2020. This growth, especially in emerging markets like Latin America, Africa and the Pacific, fueled increasing valuations of VC funds, managers of which should take advantage of outsourcing fund administration functions due to the cash inflow. Last year, about 500 VC-funded companies were welcomed to the unicorn club, including startups from Brazil, Israel and Africa.

Crypto funds

Cryptocurrency transactions bypass traditional financial institutions and are not regulated by any governing authorities. However, due to the market’s volatility and the recent crash, governments and other regulatory bodies intend to impose more regulations on cryptocurrency transactions, making crypto fund administration more relevant to the virtual asset ecosystem.

For example, the EU seeks to control the crypto market via its Markets in Crypto-assets (MiCa) law, set to take effect by the end of 2023. A proposal to tax cryptocurrencies in the Philippines has been forwarded to the new administration. Hong Kong’s Securities and Futures Commission introduced a licensing regime for virtual asset service providers.

In the administration of crypto funds, a provider must have proven experience in trading and arbitrage strategies, cold/hardware wallet management and initial coin offerings, so they can provide effective solutions to crypto investors and managers.

Real estate funds

Bolder Group monitors capital commitments, drawdowns, carried interests and complex waterfalls as well as provides investor reports to its clients in the real estate industry. These administration services are tailored to whatever type of real estate funds the client handles — whether ETFs, real estate mutual funds or private (for high net worth individuals).

Real estate fund sponsors are generally expected to provide detailed investment information to investors, who are typically hands-off and leaving the day-to-day fund management to the sponsor. 

Managed accounts

Liabilities lie in the hands of money managers handling managed accounts of, usually, UHNWI. Money managers, who may also act as fiduciaries, are expected to invest and act based on the goals and risk tolerance of their clients. A lot of considerations come into money management; for instance, portfolio diversification, securities liquidation, tax concerns, P&L reports and daily valuations, amongst others.

Some of these functions are left to third-party providers of middle- and back-office jobs. Fund administration services can be customised based on the needs of the managers and the goals of the managed accounts, including, but not limited to, customer due diligence and other compliance requirements, valuations, tax reporting, etc.

Fund of funds

Managing fund of funds (FOF) may be complex due to its structure, and even more so if the administration is done in-house. When working with fund administrators, FOF managers can benefit from outsourced AML and KYC measures on new fund investors, report and financial statements preparation for shareholders and other investors, FOF price comparison reports as well as monitoring using fund technology.

The primary duties of fund administrators 

The previously mentioned functions of fund administrators illustrate an overview of what the services providers can offer. Generally, fund administrators make it easier for fund managers to focus on their portfolios by taking charge of back-office functions.  

The following section goes into detail about the primary duties of fund administrators. 

Fund accounting

An important facet of fund administration is fund accounting. This system of accounting involves the tracking of an allocated amount of funds for a specific function in an organisation. It also touches on the maintenance of the financial records and documents of a fund. 

Fund administrators are responsible for the accounting of investment portfolios such as securities, investment holdings and capital allocations. With this, the portfolio and investor activity are professionally managed. Moreover, fund administrators record the changes in the values of instruments that constitute an investment fund. This serves as a basis for the net asset valuation, one of the other primary duties of fund administrators. 

As opposed to general accounting, fund accounting is not focused on determining whether a structure is profitable. It is more focused on tracking the inflow and outflow of funds. Fund accountants generate information to establish how resources are utilised. Moreover, fund administrators conduct the effective and proper use of such resources based on allocation. Overall, its main purpose is to enhance accountability. 

NAV calculation

The net asset value or NAV represents the value of a certain fund, which is typically presented in a per-share unit. Its value provides an insight on the performance of a fund in a particular timeframe.  

Fund administrators are tasked to determine the net asset value of a fund which helps investors assess a fund or portfolio. Organisations also use the calculated NAV to decide on the number of shares that will be issued to investors and the amount of cash paid to investors. 

Its various applications in an organisation’s financial decisions emphasise the need for the expertise of a fund administrator.  

Investor services 

Fund administrators provide the information sought out by investors to evaluate a fund. They ensure that clients obtain the necessary particulars regarding a funds’ valuation and performance.  

With the growing demand for impactful investment opportunities, fund administrators assist in investment activities that ensure transparency and inclusivity. For instance, ESG investments are becoming a crucial aspect of portfolios. Fund administrators facilitate the integration of the ESG factors into investments.  

Fund administrators provide specialised services to clients in order to alleviate concerns brought by economic challenges. Read more on how fund administrators can help with investment funds during a recession here. 

Moreover, fund administrators warrant compliance with regulations and requirements. This is one of the areas where the various compliance solutions of a fund administration firm come into play.  

Compliance solutions

Fund administration specialists ensure compliance with every regulatory framework concerning funds and investments. Fund administrators fulfill the rigorous processes needed to meet compliance, reporting, and transparency requirements internationally and within the jurisdiction. 

Fund administrators provide compliance solutions to both traditional and digitalised fund structures. As various fund structures are continuously being set up in the market, applicable laws and regulations are also created. The regulations for each of the fund structures may also differ for different jurisdictions. Fund administrators take up the burden of keeping track of such crucial aspects of fund management.  

An important segment of corporate compliance is with regards to anti-money laundering (AML) regulations. We have discussed how AML non-compliance and poor practices can affect an organisation here. 

Financial reporting

Financial reporting involves an analysis of financial data to determine the financial and operational standing of an organisation. This helps managers identify risk areas. What’s more, contains information that potential investors typically want to assess.  

Financial reports are required by authorities and are normally required by an organisation’s shareholders. Fund administrators provide financial reporting services in accordance with clients’ needs, GAAPs, IFRS, and other local accounting standards, practicing transparency and data-driven decision making.  

Tax support

Apart from financial reports, fund administrators also assist in an organisation’s tax obligations. Different fund structures and tax authorities call for distinctive tax reports. Fund administrators assist clients to generate information, accomplish tax forms and deliver requirements necessary for the operations of an organisation. A fund administrator has expertise in dealing with global tax requirements. 

Domiciliation services

Fund administrators have extensive knowledge and resources needed to successfully domicile in a competitive market. They assist in selecting the optimal corporate vehicle in a specific jurisdiction, as well as fulfilling the relevant regulatory and legal processes. 

Fund administration professionals also provide areas to carefully consider when deciding on domiciliation. Apart from the legal restrictions and regulations, factors such as fiscal obligations, local investor sentiments and set-up period are addressed.  

Legal services

Fund administration companies also provide legal services to enable fund managers to focus on their operational activities. Fund administrators work on much needed areas such as corporate governance and regulatory filing tasks. Whenever there are changes within funds, it is the duty of fund administrators to assess and highlight areas of concern.  

Bolder Group, for instance, offers legal services such as preparation and filing of statutory returns, assessment and arrangement of corporate legal documents, sending in reports to authorities, amongst others.  

Ultimately, fund administrators create a system of efficiency and comprehensive adherence to rules and regulations applicable to the organisation through their legal, accounting and corporate services. This leads to minimal exposure to legal risks and liabilities. 

Working with fund administrators: the benefits

The increasing complexity of middle-office and back-office functions amplifies the need for fund administrators. Trends involving fund administration, like digitalisation and stricter compliance regulations boost the demand for specialised services and knowledge in fund management.

Acquiring the services of fund administration firms has its benefits.

Focus on your core product offerings and services

Acquiring an outsourced fund administration service helps take away some of the administrative burdens of fund managers. The abovementioned functions of fund administrators can be outsourced to assist, not only in ensuring the execution of fund administration activities, but also in saving the time being taken away from working on non-core functions.

With outsourced fund administration, managers and investors can direct their efforts in the development of their own asset and fund strategies and activities. Fund administrators can ensure timely, quality and relevant middle- and back-office functions on behalf of its clients. In addition, fund managers can maximise this outsourced service as fund administration firms provide thorough attention and expertise in crucial administrative tasks.

Gain insights from experts

Third-party fund administrators can provide the necessary guidance and insights in addressing the needs of clients. May it be in terms of administrative solutions, fund formation, legal services, compliance, among other things, efficiency and quality of work can be ensured with professionals that work on a specific function.

As established beforehand, regulatory requirements are building up and becoming more complex. Fund administrators specialise and customise compliance services to clients according to regulatory changes. Diverse requirements in distinct regions can be attended to by fund administration agencies. In short, experienced fund administrators could fill in the knowledge and skills gaps potentially present in a non-specialised in-house team that would execute these middle- and back-office jobs, especially in terms of legal compliance.

Establish cost-efficiency

The resources and workforce needed to execute back-office functions can be allocated to other business units by having fund administrators. Fund administrators can help do away with the costly expansion and development required to obtain a professional team to manage key fund administration responsibilities. Moreover, outsourcing such services could minimise the need to develop in-house tools, technology and systems.

Fund administrators minimise potential errors and legal issues, essentially preventing unnecessary costs. Professionals such as AML officers ensure compliance with regulatory and reporting requirements.

Bolder Group, for instance, has various regional offices that cater to the local fund managers and investors. Moreover, our international teams offer several corporate, private, funds and governance services tailor-fit to each sector and jurisdiction.

Working with fund administrators can be a favourable option as the composition of fund administration services continues to grow. Being able to focus on core responsibilities, obtain professional solutions and services and achieve cost-efficiency in a challenging and fast-growing facet of a business with fund administrators could help achieve operational advantage.

Who benefits from fund administration services?

Fund administration involves various services that ultimately reduce administrative burdens and achieve operational efficiency and growth. For instance, Bolder Group’s fund administration services are mainly catergorised into corporate, private, funds and governance.

With this, various entities can make use of and benefit from such services. Let us determine some of the entities that may benefit from each of the fund administration solutions.

Market entrants, new corporations, … 

A fund administration professional can administer corporate services such as business and market entry support, company structuring, and secretarial services, to name a few. A market entrant could benefit from specific business and market entry support functions which involve the provision and search for employees, managers and directors, payroll services, office solutions, amongst others.

Parties who are looking to establish a company or a Special Purpose Vehicle (SPV) can be assisted by fund administrators. Moreover, corporate entities, especially those that are newly formed, can avail of services that enable systematic and secure fulfillment of corporate requirements.

Entrepreneurs, families and family offices, … 

Private fund administration services pertain to functions that address internal business concerns and obligations. With this, entrepreneurs who are looking to manage their finances and operations could benefit from such services. Entrepreneurs can turn to fund administrators to manage these tasks with confidentiality and made to fit their personal needs.

Families and family offices likewise benefit from fund administration services. Fund administrators have the expertise in advising these parties in administering family business functions such as succession planning, private equity structuring and family meetings, to mention a few.

In addition, fund administrators can assist estate holders in managing their wealth and asset portfolios, as well as organising their philanthropy endeavours. Private entities, thus, derive benefit from the tailor-fit services of fund administration specialists.

Asset and fund managers, investors, … 

Fund administrators provide services to different types of asset managers. May it be hedge fund managers, real estate managers, private equity managers, or private equity fund participants, to name a few, fund administrators carefully analyse and deliver the needs and goals of these managers. They also take on essential responsibilities for asset and fund managers for them to focus on their core offerings.

Similarly, investors benefit from the professional services of fund administrators. Investors in cryptocurrency and funds, for instance, can acquire timely and relevant information regarding their investment portfolios. Fund administrators can also provide accurate reporting and trading strategies to these investors.

Brokers, art dealers, realtors, … 

Fund administration professionals administer corporate governance services which cover facets such as compliance and KYC/AML services through consulting, regulatory reporting and filings and officer provision services, amongst other services.

Other parties utilise corporate governance services aside from the abovementioned corporate bodies, other investment vehicles, asset and fund managers, and private entities; brokers, art dealers, realtors also derive benefit from the governance services of fund administrators.

Brokers and realtors administer trades and exchange of investments. Consequentially, they would need to comply with relevant regulatory systems such as AML, terrorist financing, auditing requirements, amongst others. This also applies to those who participate in the art market as they deal with a number of clients and valuable assets.

The complexity of regulations and other compliance requirements in their field of work can be accommodated by fund administrators. With this, risks associated with non-compliance are minimised. 

Fund administration professionals have numerous services available for these parties to address their needs and use them to their advantage. A fund administration professional has the resources, knowledge and expertise to assist any of these entities. If you are looking for a fund administration service provider to conduct your corporate, private, fund and governance needs, contact the Bolder Group team.

Fund administration technology

Before technology took over a significant part of the fund administration process, clients used to request for a physical copy of a summarised report. But with digital advancements, now, they prefer real-time access and overview to relevant data that would help them make informed investment decisions.

This option is readily available when fund managers partner with third-party fund administration firms. Usually, these companies are equipped with cutting-edge financial technology that helps them automate the workflow, digitise documentation and secure data.

Industry experts see rapid digitalisation as one of the key trends shaping the fund administration industry this year and in the coming years.

How does technology shape fund administration?

Cloud capabilities

The Covid-19 pandemic has magnified the need for a better digital workflow, as entire departments have begun to shift to part-time or full-time remote working. Now, while cloud capabilities have been around for years to support fund administrators’ need for real-time data accessibility, fund administration firms have turned to more sophisticated cloud network systems to ensure their offices from around the world collaborate efficiently. The cloud provides fund administration companies with a central platform that can be used for fund accounting or transfer services and more.

Investor or fund manager portals

In some cases, fund administration companies outsource software that allows their clients to access their underlying fund data and investor statements. These programs are designed to safekeep information about transactions, net asset values, contract notes and other files that contain particulars needed for investment decisions.

Some fund administration firms have an in-house software development team who designs such portals, so that fund and asset managers, as well as investors, can retrieve data from a single platform. In-house developed programs are advantageous in the sense that no third-party providers can enter this portal, thus making the data more secure.

Forensic tech

Compliance solutions are key facets of fund administration services. Fund administrators have adapted forensic technology to make their compliance service workflow more efficient, ensuring accuracy and enhancing the end-to-end process, as well as transparency protocols.

With forensic technology, fund administrators will be able to effectively capture and analyse data for KYC, CDD, CFT or AML checks. What’s more, it allows data to be accessed in a fraction of time, as opposed to sifting through hard copies of needed information. This especially gives compliance officers time to focus on the documents instead of looking for relevant data.

Due to the volume of data from external and internal sources, it is crucial to have updated technological infrastructure that will allow for transparency, accuracy and accessibility. Click this link to know the technology we use at Bolder Group.

To know more about fund administration and our services, contact a Bolder office near you.

Bolder Group is an independent global organisation providing fund administration services in the Americas, EMEA and Asia.