Administrators are responsible for keeping a record of a fund’s asset, providing shareholder services and calculating the Net Asset Value as well as financial reporting. The current boom in hedge funds is good news for administrators since institutional investors and retail investors view these as the safest place to inject their capital in view of the current unstable markets. This boom has come about as a result of prime brokerage and hedge fund administration. This involves keeping the records of a fund’s assets, processing share applications, calculating its net asset value, and providing shareholder applications.
Designing an investment strategy is just a part of the plan. You need to go beyond this and set up your firms’ infrastructure. It is important to know how to budget the overall costs of starting a hedge fund.
Major Costs of Fund Administration Services
- Legal costs: the first thing you will need is to a legal structure. This mainly involves setting up a limited partnership and any other required additional entities. There are various places where you can incorporate your fund such as your home state, or Delaware registered. You should find the best advice on what best fits your strategy by consulting your legal counsel. The cost of setting up a hedge fund can vary and the maximum amount can be $50,000. The type of law firm you use will also determine the cost. Your legal counsel will assist you with other processes such as the creation of disclosure documents and operating memorandum. You should also be able to discuss the strategy to be used in investment and potential legal issues that could arise while preparing your documents.
- Back office and administrative costs: the best hedge fund administration services will provide you with the insight needed to grow. This helps you keep focused in trading and raising assets. Administrators often use large software packages to link with other third parties. This ensures your daily and monthly numbers are more efficient, accurate and cost-effective. It is very important for a manager to find a provider who will provide you with technical support in reviewing your documents and offering you valuable referral network in case you want additional services. The administrator will provide you with practical guidance on how to best run your fund business. The services of an administrator are not limited to providing you with portfolio and partnership accounting. It also extends to giving you the best reliable and practical guidance on the operational aspects of running the fund. Above all, it is important to find an administrator with the ability to help your fund grow and succeed. As your hedge fund grows, the administrative cost will also grow but these costs can be kept in check with the right technology, staff and by keeping your needs into consideration.
- Investment compliance Cost: it is vital for you to adhere to the latest compliance rules. A compliance expert can help you confirm if you are properly registered under the correct regulatory bodies. Because these rules change it is important for you to choose a compliance service provider who will keep you up to date with the latest changes.
- Tax and audit costs: you should partner with a reputable firm that is recognized as an industry specialist so that all the procedures are followed. All alternative investment firms need to go through a third party audit of all results and report. An ideal choice would be select an auditing firm that not only works well but also is well acquainted with other service providers such as an attorney or fund administrator. This can keep the costs low and speed up the entire audit process. There are many factors that determine the cost of the audit process. This includes the number of partners in the fund, how many accounts are at different brokerage firms, and the diversity of these investments. The cost can also be affected by the accuracy of the monthly counting. An auditor is more likely to receive an accurate estimate thus saving money and time f he is familiar with the industry. New fund managers might want to select a seasoned auditor that has already established relationships and has a reputation in the industry. This will help reduce administration costs as an auditor might give recommendations on how to be more efficient in record keeping thus improving a fund’s profitability.
- Technology costs: the cost of technology will vary depending on the strategy of the fund. There are a few basics however, that must be covered. The core technology items include high-speed internet connectivity, a professionally hosted email address and secure location to store documents and backups. The office must also have a proper cyber security protocol. If you manage an automated trading strategy, you will need a solid communication infrastructure, real-time data, and research, regular backups in case of an outage or disaster. A sudden outage can create severe consequences if there is no backup procedure.
How to Assess the Performance of Administrators
The performance will be judged on its net added value calculations, shareholder administrations, administrative controls, and corporate secretarial services. Other considerations include the stability of the administration company, investment levels, and its general systems capabilities.
Calculating the performance can be a complex process and will depend on the methodology used. The account can also be subject to various accounting standards so it is vital to have a working knowledge of the different accounting practices.
Accurate maintenance of shareholder register is important. One should also ensure that anti-money laundering procedures are properly controlled to avoid fraud cases. In addition to that, the content and presentation of shareholder statements should be both clear and professional. It should also be flexible enough to be able to match with specific client requirements. This can be the inclusion of a logo.
It must be noted that a high level of automation for daily production and high trading volumes. This requires the input of knowledgeable staff.