Fund administration is undoubtedly a very important task nowadays. And it pays for fund managers to have third-party administrators help manage their business. But what do these third party companies do anyway?
Calculating the values of net assets
Fund administrators are usually independent companies that offer a wide range of solutions and services that are mainly designed to assist hedge fund managers in verifying the values of assets, reconciling data, ensuring fair pricing for traded securities, preparing investor statements and other reports, and other tasks.
It is the first task that is arguably the most important, as many people who work for asset servicing firms would agree; accurately calculating net asset values and ensuring all transactions on record had actually happened is vital to the integrity of every hedge fund or similar vehicle.
Data reconciliation
The second of the aforementioned tasks, which is the reconciliation of data, is another key service offered by third-party asset servicing firms, and one that is closely related to asset value verification. Usually, toward the end of the month, broker statements and investment manager statements are checked and verified to make sure they are not inconsistent with one another. Administrators also have to consider different variables that could affect net asset values, such as the inflow and outflow of investor assets.
Fair pricing
Fund administrators also have to make sure that each traded security has been priced fairly. This could require a lot of mathematical grunt work, but thanks to the experienced staff that are now de rigueur for third-party asset servicing companies, this is easier to complete than what one may think. In fact, administrators typically use the averages of three quotations from brokers, and only use sophisticated math when a particular holding is a rather complex one.
The cloud plays a valuable role in administration
In today’s fund administration industry, more and more companies are leveraging higher-end technologies to ensure they take good care of their funds their clients manage, and deliver accurate information on time, all while being compliant with all laws, regulations, and statutes.
Cloud-based technology is a requisite for these firms, who offer a wide variety of middle- and back-office solutions, and handle the tasks mentioned above, among many others. Considering the repercussions of the Bernard Madoff scandal and the higher premium on transparency demanded by investors, hedge fund managers will certainly be better for dealing with third-party companies for their asset servicing needs.
