By Marios Charalambous, Manager at CPF Fund Administration
Fund administrators play an increasingly pivotal role in the funds ecosystem by providing critical operational support to fund managers and assurance of integrity within investment funds for investors. Their independent role enhances the transparency, compliance and stability of financial markets.
From a local perspective and looking into an emerging fund centre such as Cyprus, the role and responsibilities of fund administrators started in 2013 by a mere extension of the accounting obligation and evolved to a significant counterparty of the fund’s core functions. This will be further enhanced by the upcoming enactment of the legal framework for the authorization and operation of the Fund Administrators, which is expected to take place in 2023.
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This evolution of course, has been proportionally bigger in the traditional fund centres, where huge strides of development and improvement have been taken place in the last 20 years.
Funds were historically self-administered by the fund manager using an internal finance team, accounting firm, or some other external firm to assist. Aside from a lack of independence this led to non-standardised procedures. For example, some of these companies allowed the manager to adjust the books and records as they wished, while others were not independently pricing securities or reconciling trades, simply calculating NAVs taken from custody report statements. As funds evolved and the investor needs changed, so did the fund administration services. Fund administration evolved into a back-office necessity for many asset managers to maintain books and records and process investor activity.
Today, fund administrators are expected to be partners with investment managers, while also being cognisant of the best interests of the fund investors. Services have also expanded from accounting and investor record keeping, to now include technology that supports financial reporting, regulatory and tax reporting, investor tax reporting, AML compliance, company officers, investor relations, real time reporting, web portals, etc.
The cornerstone of this evolution and development has one word and one word only written all over it, “technology”.
As the needs and size of investment funds started to grow in the early 2000’s, fund administrators started to realise that the bespoke accounting databases and manual processes used at the time were becoming outdated. This need triggered numerous technology firms to enter this new space with expanded offerings which initially covered basic accounting and transfer agency requirements. Although this shift towards technology and automation was a step to the right direction, not everything was smooth. Many of the technologies were built around a specific type of fund or structure and were lacking monitoring to some of the investment requirements such as gates, side letters etc. These issues forced fund administrators to invest in different vendors to support different functions of the fund, with the manual intervention to exist in many processes of the fund and the data transmission between interconnected platforms to be one of the main challenges.
Despite these challenges, this shift towards technology enabled fund administrators to elevate their role within the fund and increase their efficiency. In terms of fees they were able to charge half of what they were charging for a similar fund 10-15 years ago and offer a significantly higher reporting and service level. This automation though came at the expense of personalisation, as fund managers quickly realised that the technological solutions available, even today, are not as flexible and adjustable towards the various types of funds as one would have expected.
Fund administration going forward
In a rapidly changing world where in the last 3 years we have experienced and we are still experiencing a global pandemic, a major m