Hedge fund administration involves the accounting, consulting and management of an investment firm’s key funds. A third-party, hedge fund administrator’s primary duties are to protect investors’ interests and to ensure that a firm’s funds are operating efficiently.
More specifically, a hedge fund administrator’s responsibilities may include, but are not limited to:
- Calculating the Net Asset Value (NAV) of the firm’s funds;
- Providing accounting and back-office services;
- Preparing and filing financial statements, including any SEC documentation and reports;
- Serving as a liaison between investment managers and brokers and service providers;
- Verifying and calculating all fees and payments;
- Ensuring fair pricing of all financial instruments;
- And conducting a review of potential money laundering activities to help firms comply with anti-money laundering (AML) laws and regulations.
In general, there are three broad categories of hedge fund administrators based on size: those for small,
medium and large-sized firms. Although hedge fund administrators for small firms may have the ability to work with larger amounts, a smaller firm will start working with a third-party administrator when its client assets under management (AUM) hit the $50 million to $100 million range. As hedge fund managers grow their AUMs, they can turn to providers that can take on the responsibility for greater sums and offer more services and support.
Hedge fund administrators and fund administration in general have become increasingly important as a result of the fallout of the Great Recession. In particular, the massive Ponzi scheme behind an asset management unit created by convicted fraudster Bernard L. Madoff refocused attention on the need to bring greater transparency to the movement of funds. Since the scandal, investors have been encouraged to hire third-party administrators in order to provide greater transparency and bring more efficiency to financial transactions involving investors’ funds.