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In my previous blog post, I explained that the setting up of an investment fund is like putting together a jigsaw puzzle.

There are lots of pieces – and unless you know how they all fit together, the process can seem daunting.

However, once the fund jigsaw puzzle is complete and the fund is established, what happens next?

Remember, an investment fund is essentially a business.

So like any business, it is made up of many components and functions that must operate in unison and be managed correctly. If this doesn’t happen, cracks start to appear.

The fledgeling fund manager and his management and trading skills are just one component of the fund business. Other components and functions include:

  • Fund accounting and calculation of the fund net asset valuations;
  • Fund Registrar and transfer agent;
  • Corporate and secretarial;
  • Investor relations;
  • Regulatory compliance and reporting;
  • Treasury and cash management;
  • Audit and financial reporting;

So who takes care of managing the fund-business? Who ensures that the business operates in the correct and proper way, in accordance with its regulatory obligation?

Like any business, a fund is a company and it has a Board of Directors. Ultimately, they are responsible for the above.

However, these directors are ‘external’ directors. Unlike a typical business, the investment fund does not normally have a physical presence with offices and staff.

Therefore, all of the functions essential for the day-to-day operations of the fund business are out-sourced by the directors to specialist service providers.

This is not to say that the fund directors out-source their fiduciary responsibilities and obligations, they are still responsible for the affairs of the fund.

Let’s take a look at some of these responsibilities.

Fund Accounting

The accounting functions (the preparation and maintenance of the fund’s financial statements, records and calculation of the net asset valuations) are outsourced to a regulated and independent fund administrator.

This fund accounting function is part of the administration services that Ifina provides to its client-funds.

Typically, we calculate daily indicative NAVs for our client-funds (where daily pricing is available) and provide these to the fund directors and investment manager.

The net asset valuations are also periodically (typically monthly) reported to investors and posted on data systems, such as Bloomberg.

The administrator maintains the financial records of the fund and provides these to the fund auditor at the end of each financial year.

Fund Registrar & Transfer Agent

The fund’s working/investment capital is derived from the investors subscribing for the participating shares in the fund. Therefore, a share register must be maintained to process and record each investor’s interest.

The share registry function is outsourced by the directors, typically to the fund’s administrator.

The Registrar and Transfer Agent is responsible for maintaining the fund’s share register, which includes processing investor subscriptions, conducting all the AML and KYC checks on each investor, collating investor due diligence, recording each investors interest in the fund share register, issuing investor confirmations and valuation reports and processing investor redemptions.

As the appointed administrator, Ifina acts as the Registrar and Transfer Agent to all its client-funds.

Corporate & Secretarial

As a company, the fund must maintain accurate corporate records. This is a function that Ifina provides to all its client-funds in its role as fund administrator.

Essentially, we act as the official record keeper for the fund company. As the official record keeper, we organise the Board meetings, record minutes of the meetings and keep statutory records.

Ifina provides this service to all its client-funds.

Investor Relations

Investor relations in the financial markets is extremely important in order to establish and maintain investor confidence.

In addition, it’s important to demonstrate that the fund is operating good corporate governance and regulatory compliance practices. Therefore, communication with investors is paramount. After all, it’s their money that is at risk.

Investors subscribe for participating non-voting shares in the fund – so they do not attend shareholder meetings.

With this in mind, they rely on the fund communicating with them on a frequent basis. The directors outsource the basic investor communications (valuation reporting) to the fund administrator and registrar and transfer agent.

Investors need and want to be informed, not just of the fund’s performance and the value of their investment, but also if there are any events or unusual circumstance that may impact their investment.

As the fund administrator and registrar and transfer agent, Ifina works closely with the fund directors to ensure that investors are kept fully informed in a timely manner.

Regulatory Compliance & Reporting

The fund is a regulated entity and as such must remain compliant with the mutual fund laws and requirements of the jurisdiction where it is domiciled. This involves the timely filing of regulatory reports, such as audited financial statements, CRS and FATCA reporting, etc.

Again, the directors outsource this function. It’s a service that Ifina provides to all its client-funds in its role as the fund administrator.

Treasury & Cash Management

An important function in the operation of a fund is efficient treasury and cash management. Managing the movement of cash in a secure and timely manner is crucial to the day-to-day operations of the fund.

Management and reconciliation of the fund’s bank accounts, arranging payment of service provider invoices and investor redemptions, and transferring money to the fund’s broker accounts, requires a hands-on approach.

Again, the directors will outsource this responsibility, typically to the fund administrator.

Ifina handles the treasury and cash management operations for all its client-funds by establishing the banking relationships.

Audit & Financial Reporting

A regulatory requirement for all the funds that Ifina administer is that they are independently audited at the end each financial year. Therefore, the directors appoint a reputable and recognised accountancy firm to carry out the annual audit.

Do you need help setting up your investment fund? Email sbratchie@ifina.com and we can arrange a call. If you have any questions, please leave them in the comments below.

 

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