Fundamentals of Fund Administration: A Guide (Elsevier Finance)

217 Pages·2007·1.94 MB·English

by  David Loader

Fundamentals of Fund Administration: A Guide
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Fundamentals of Fund
Administration: A Guide
A Complete Guide from Fund Set Up
to Settlement and Beyond
David Loader
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Contents
INTRODUCTION 1
1 UNDERSTANDING THE INVESTMENT ENVIRONMENT 5
Investment funds 5
Structure of funds 7
Investment company 9
Authorised and unauthorised funds 9
Onshore and offshore funds 10
Portfolio investment 10
Markets and investments 12
Investment drivers 18
Products and assets used in portfolio management 32
2 HEDGE FUNDS 33
Market neutral (or relative value) funds 34
Long/short funds 34
Tactical trading 34
Global asset allocation funds 34
Event-driven funds 35
Short-selling funds 35
Arbitrage funds 35
Tax issues 37
Regulatory issues 38
Business issues 39
Investment issues 40
Marketing issues 40
Operational issues 41
Defining responsibilities 42
Fund set-up summary 43
vi Contents
3 MUTUAL FUNDS AND OEICs 45
Background 45
OEICs 46
Dilution levy 46
Share classes 46
Currency class shares 47
Different rights 47
Advantages over unit trusts 48
Hedge vs mutual funds: A comparison 48
4 PRIVATE EQUITY 51
Definition of carried interest 52
Venture capital funds 53
Fund administration 55
5 UNIT TRUSTS 57
Origins of the unit trust 57
Buying and selling units 58
Charges 58
6 THE ROLE OF THE FUND ADMINISTRATOR 61
Reconciliation 62
Administration workflow 62
Hedge fund administration 64
Structure 65
Global reach and location 66
Business considerations 66
Technology 67
Fees 68
Fund launches 69
Accounting 70
Compliance services 70
Summary 71
7 PORTFOLIO ADMINISTRATION 73
Assets of the fund 74
Margin and collateral 76
Asset trades 76
Income and entitlements 77
Unmatched transactions 80
Unsettled transactions 81
Claims 81
Contents vii
8 NAV, PRICING AND VALUATIONS 83
Pricing of funds 85
Hedge fund pricing 86
Pricing assets 87
Pricing controls 87
Equalisation 89
Summary 91
Glossary of fund administration terms 93
Useful websites and suggested further reading 171
Appendix 1 173
Appendix 2 177
Index 207
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Introduction
Many funds have decided to concentrate on their role as investment
managersandhaveelectedtooutsourceasmuchoftheadditionalwork
structure, particularly operational work. Also the “newer” funds like
hedge funds are structured in such a way that the support roles like
custody and administration tend to be handled by specialist organisa-
tions, prime brokers and fund administrators.
These roles are important as in reducing almost completely the need
forthe“fundmanager”,inthissensethesponsor/owner,tobeinvolved
in anything but investment decision-making; and the setting up of
new hedge funds is made staggeringly easy. This may go some way in
explaining the significant growth in these funds in recent years (hedge
funds are not a new phenomena).
However, fund administration has evolved from a relatively humble
beginning where the primary role was that of calculating the value of
the assets in the fund so that a price for the investors wanting to buy
or sell shares or units in the fund could be established. Today a fund
administrator may have roles related to everything from setting up the
fund to risk management and compliance roles. The administrator is
verymuchmonitoringthefundtoensurethattheactionsoftheinvest-
mentmanagerareinlinewiththeobjectivesofthefund,theregulatory
environmentapplicabletothefund,thetaxsituationaffectingthefund
and the client service role between the fund and its investors.
As a result some of the functions previously carried out by specialist
firms have been absorbed into the fund administration role, particu-
larlywithinthelargerfundadministrators.Transferagency/fundregis-
trar services for instance are provided as part of fund administration
services by some companies. However specialists can and do survive,
providing bespoke services to their clients.
In some ways the fund administration business has evolved in a
similar way to custody services. Consolidation, expanding range of