Fund administration: The roles of administrators in the hedge fund space

For the past few years, hedge funds have been turning more and more to third party fund administration, with the companies offering these services verifying asset values, creating reports, ensuring compliance, and many more. Here are some of the key roles that these third party firms play. Net asset value calculation The first thing that fund administrators do is to independently calculate a fund’s net asset value. They are required to ensure all transactions on record had taken place, and usually conduct this as part of a fund’s maintenance at the end of each month. Administrators have to compare broker statements against investment manager statements, reconciling the data, then calculating the net asset value. And while this is done, administrators also have to take into account the inflow and outflow of assets, as that could prove an important variable in asset value calculation. All about the maintenance Fund administration is a very maintenance-intensive task. It is not exciting work, but it is absolutely necessary, considering the additional importance of compliance in today’s financial markets. Administrators also have to scrutinize a hedge fund’s financial records, create a host of reports, and prepare annual and semi-annual accounts alike. Furthermore, all traded securities have to be looked into, and while checking for fair pricing may require a lot of complicated calculations, third party fund administrators often average a handful of quotations from brokers in order to come up with the required data for fair pricing. Ensuring compliance in all areas The regulations hedge funds have to deal with in the present day are far stricter and far more plentiful than they were prior to the financial crisis of 2008. Fund administrators also have to handle compliance-related tasks, and release reports pursuant to the legislation against money laundering. The importance of transparency and compliance cannot be understated, especially in the aftermath of the said recession. Use of best-of-breed technology The fund administration business continues to evolve with each passing month. Right now, it is virtually a requirement that third party companies offering asset servicing make use of the cloud and other sophisticated technologies, all designed to make the process of administration much easier. The top companies in the world of asset servicing will always keep up with the trends, if not blaze new trails, and it will always be in the best interest of hedge funds to turn to these companies if they need first-rate fund administration.