Fundamentals of Fund Administration: A Complete Guide from Fund Set Up to Settlement and Beyond

Fundamentals of Fund Administration fills a gap in the lack of books that cover the administration and operations functions related to funds. With the growth of hedge funds globally there is more and more requirement for fund administration services, and the success of the fund administration is crucial to the success of the funds themselves in a highly competitive market. As the focus on operational risk, cost effective support and administration of trading and investment and the ability to design, develop and deliver added-value services for clients grows there is a need for a comprehensive analysis of what happens from trade to settlement and beyond and the exact role that the fund administrator may be required to provide.

Introduction:

Many funds have decided to concentrate on their role as investment managers and have elected to outsource as much of the additional work structure, particularly operational work. Also the “newer” funds like hedge funds are structured in such a way that the support roles like custody and administration tend to be handled by specialist organisations, prime brokers and fund administrators.

These roles are important as in reducing almost completely the need for the “fund manager”, in this sense the sponsor/owner, to be involved in anything but investment decision-making; and the setting up of new hedge funds is made staggeringly easy. This may go some way in explaining the significant growth in these funds in recent years (hedge funds are not a new phenomena).

However, fund administration has evolved from a relatively humble beginning where the primary role was that of calculating the value of the assets in the fund so that a price for the investors wanting to buy or sell shares or units in the fund could be established. Today a fund administrator may have roles related to everything from setting up the fund to risk management and compliance roles. The administrator is very much monitoring the fund to ensure that the actions of the investment manager are in line with the objectives of the fund, the regulatory environment applicable to the fund, the tax situation affecting the fund and the client service role between the fund and its investors.

As a result some of the functions previously carried out by specialist firms have been absorbed into the fund administration role, particularly within the larger fund administrators. Transfer agency/fund registrar services for instance are provided as part of fund administration services by some companies. However specialists can and do survive, providing bespoke services to their clients. In some ways the fund administration business has evolved in a similar way to custody services. Consolidation, expanding range of services, competition, increased costs and investment have all impacted on the business.

This expansion of funds and the role of the fund administrator is not without its problems. Some financial centres like Dublin have witnessed huge growth within a short time frame. This can obviously lead to strains on the infrastructure and the community not only in small offshore locations but also in larger locals like Dublin and Luxembourg. Shortage of experienced personnel is an inevitable consequence of the development of fund administration services in a developing financial centre. This is made more critical by the need for skill sets in more and more diverse products and strategies, particularly in the hedge fund arena. Another factor is that the large organisations can move their entire operations function dealing with the administration of funds and other operations-based functions to these localities putting even greater pressure on the recruitment environment.

Contents:

• UNDERSTANDING THE INVESTMENT ENVIRONMENT
• HEDGE FUNDS
• MUTUAL FUNDS AND OEICs
• PRIVATE EQUITY
• UNIT TRUSTS
• THE ROLE OF THE FUND ADMINISTRATOR
• PORTFOLIO ADMINISTRATION
• NAV, PRICING AND VALUATIONS

Fundamentals of Fund Administration: A Complete Guide from Fund Set Up to Settlement and Beyond By David Loader