Fund Custody and Administration

Fund Custody and Administration provides an overall perspective of investment funds without limiting its analysis to specific fund structures, as other books do. Since governance and oversight of investment funds are now major regulatory requirements, administrators and custodians must place greater emphasis on the custody and safekeeping of fund assets, on the independent and robust valuation of the assets, and on collateral management.

Introduction:

Fund administration and custody are generic processes that all funds whether retail products available to all investors or what have become referred to as alternative investment funds (AIFs) which are restricted in terms of the type of investor. There are many tasks and functions that will be carried out by teams under the services of administration and custody. Some will be common across funds and others will be quite bespoke to particular types of fund.

Common tasks and functions will include for the administrator areas such as:

1. Fund set up
2. Fund records
3. Pricing and valuation of assets
4. Compilation of the fund accounting records
5. Production of the audit file
6. Calculation of the Net Asset Value (NAV) of the fund
7. Dealing with investors subscriptions and redemptions
8. Communication with investors
9. Secretarial services
10. Reporting

The precise workflow will be very much dependent on the fund and is determined by things such as the investment products and strategies used in the investment process. In addition the regulatory requirements will affect the work the administrator is involved in and the level of work will vary from lightly (relatively) regulated funds like AIFS to the heavily regulated retail funds. Of course, there are also unregulated funds, which have very little associated work.

Custodians will have common services they provide to funds in particular the following:

1. Safekeeping of assets
2. Managing the asset settlement process with the market infrastructure
3. Managing activity in securities lending and borrowing
4. Managing activity in corporate actions
5. Dealing with withholding tax (WHT) reclaims

In terms of the bespoke services that the administrator and custodian offer this is perhaps more prevalent in the context of the alternative Investment funds which in general terms comprises Hedge Funds, Private Equity Funds, and Property Funds as well as perhaps Commodity funds and those investing in specific alternatives. The administrator is in effect, the management of the Fund in virtually all aspects of the day-to-day operations of the Fund, except the actual investment of the assets, which is the responsibility of the investment manager.

As a result, the administrator is always answerable to the Board of Directors, General Partner or Trustee and does not have any actual senior management control. In simple terms, an administrator is responsible for ensuring the efficient operation of a fund leaving the investment manager free to concentrate on the portfolio of investments. Some funds are listed on exchanges and if this is the case, the administrator will ensure that the company and the directors comply with the ongoing obligations of the relevant stock exchange.

Contents:

• Introduction to Investment
• Regulation and Fund Structures
• The Day-to-Day Operation of a Fund
• Risk
• Introduction to derivatives
• Summary—Fund Administration Notes
• The Future of Fund Custody and Administration

Fund Custody and Administration By David Loader pdf