Freight distribution

Fund Administration Services Explained

Logan Rittenberg

Topics: Fund Administration

Fund administration is a service whereby a third-party company acts as an intermediary between fund managers and investors to verify and distribute assets tied to investments. 

The roles of a fund administrator can vary depending on the fund’s specific demands and industry (private equity fund administration, hedge fund administration, etc.). Generally, however, they can include the following: 

  • Facilitation of fund expenses 
  • Asset custody 
  • Fund Accounting 
  • NAV Calculations 
  • Investor distributions and dividend payments 
  • Back office accounting 
  • Regulatory compliance


The Need for Alternative Fund Administration 

You might be wondering, “why don’t funds just take on the process themselves?” Hedge fund managers, for example, have a lot on their plates. They do not typically have the time, capacity, or necessary platforms to handle the day to day processes on their own. To compensate, companies will typically outsource the fund administration process to companies who specialize in the space.  

To fulfill the standards of a legal fund administrator, there are several compliance, due diligence, and structural requirements that need to be met. These standards are not trivial by any means and can mean the difference between a flourishing operation and one that can get you in some hot water with the SEC.  


Asset Custody 

For a private equity administrator to be able to distribute funds, they must be able to hold custody of them. Who can hold custody of funds? You guessed it. Licensed Custodians. 

Simply put, a custodian is a financial organization that can safely and legally hold assets on behalf of beneficiaries to mitigate their risk of loss or theft. Both trust companies and banks are examples of custodians. However, banks can often be more stringent with the types of assets they are willing to take custody of. Trusts, on the other hand, operate under different SEC regulations and can handle a variety of assets including private placements and real estate.  

Fund administration companies will need to partner with a licensed custodian to legally operate. One benefit of working with a company like American Estate & Trust is that we are a licensed custodian. This enables us to hold custody of assets and operate as an independent unit without having to outsource custodial and compliance processes.  

Less outsourcing = reduced costs for us = reduced costs for you. 


Anti-Money Laundering & Compliance  

Anti-Money Laundering and Know Your Customer (also known as AML/KYC) are protocols put into place to give businesses a transparent view of their customers. These measures help to make sure that no bad actors or unlawful activities are being committed.  

Investment funds are no exception for meeting the standards of compliance. Since compliance itself is its own process of checks and balances, fund administrators will commonly step in to fulfill this role to make sure that investors in the fund are properly accredited and vetted.  

When prospecting fund administrators, it is important to make sure that they have a versed history in regulatory compliance (i.e. make sure they know how to follow the rules, or it could cost you!). They must have the appropriate systems put into place to ensure the quality of investors. These measures are vital to the health and longevity of any investment fund.  


Technological Infrastructure 

Another piece to the fund services puzzle is the technological demands needed to distribute the actual funds, as well as provide managers with accurate insights about their assets to avoid mishaps.  

The days of pen and paper are long over. It is now possible for managers to handle fund administration duties through automated, less labor-intensive fund management software. 

Tools such as AET's  Trust Platform are modern solutions to the fund administration process. We are removing unnecessary parties from the equation and providing a more streamlined experience for managers and investors. 

Through Trust Platform, fund managers can access their dashboards to manage their investors. In turn, their investors can log in to their portals so they can accept, manage, and transfer their distributions.  

Want to learn more about AET’s retirement services for deal sponsors? 

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