The use of an administrator serves many functions. It provides tremendous leverage to a manager, given the sheer size and scope of resources available from an administrator. A good administrator can lower the cost to retain and produce important records, process trades, and provide reports to investors.
A good administrator can also provide investors with a comfort level that assets entrusted to a manager have been independently and periodically verified, that they are priced appropriately, and that the profit or loss is calculated properly each month. Administrators provide a critical bridge between the time money is given to a manager and the time the fund completes its annual audit.
Hedge fund administrators are independent organizations that provide a wide range of operational and accounting support and can also maintain shareholder records and process subscriptions and redemptions related to specific funds.
The cost of fund accounting and administration is usually borne by the fund itself. Fees can range from 5 b.p. to 35 b.p. or more with a minimum of $5,000 up to $10,000 per month for basic fund accounting and administration. Costs can quickly expand as additional services, such as risk reporting or anti-money-laundering compliance, are provided.
The primary purpose of funds contracting with administrators is to demonstrate to their investors that the assets of the fund are safeguarded, are processed and reported on a timely basis, and are independently ...