Scope: Asset administration has become a major outsourced business function in the field of investment fund management, pension fund administration, insurance, banking and capital markets. Independent investment managers hire prime brokers to perform execution of trades and deliver other support services, including custody and clearance. The drudgery of complex fund accounting can be outsourced, including net asset value (“NAV”) calculations, pooling and multi-manager options for applying the same investment strategies across multiple asset pools, and dealing with multiple classes of investors and shareholders in the same investment pools. Indeed, the process of creating and distributing new investment funds can be outsourced as well.
Asset administration may also cover financial administration of financial and investment transactions and other corporate treasury functions. Third-party service providers can handle corporate actions, share transfers and notifications for recapitalizations and restructurings, regulatory reporting and periodic financial accounting and reporting.
Of greatest value, perhaps, are those services that measure and report on financial performance, investment compliance and analytics to support better investment management decisionmaking.
Technical Requirements: In addition to the usual Internet-enabled software and access to transactional data, outsourced asset administration requires close contact with the governments of the jurisdictions where funds may be established for tax, security and legal reasons, such as Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Ireland, Isle of Man, Jersey, Luxembourg and elsehwhere. Specialist administrators typically are associated with banks and securities brokers who can execute trades as well as provide custody, margin loans, and sophisticated financial services as a counterparty.
Benefits: Asset managers with a 10-year track record may conveniently establish new investment funds with minimal personal involvement in the technicalities of the registration, accounting, start-up and operational tasks associated with fund raising, shareholder relations and other compliance functions. Outsourced asset administration can enable asset managers to focus on investment strategy and risk management. Of course, outsourcing does not obviate the legal mandate to have a compliance officer, but it enables the compliance officer to have accountability from a third party for managing the systems, processes and people who implement and report on financial transactions.