The Fund Industry: How Your Money is Managed, 2nd Edition

CHAPTER 14

Fund Operations

As we've seen, mutual funds are extremely complex, governed as they are by comprehensive and detailed regulations. So it's no wonder that mutual fund operations are quite complex, too. These operations are carried out by a set of service providers working on behalf of the fund. As we noted in Chapter 2, some of these service providers may be part of the fund management company, while others are third parties.

Fund operations are often referred to as the back office, because they largely take place behind the scenes. (Portfolio management and sales and marketing are the front office.) Despite its low profile, the back office is a critical component of the industry. In 2013, over 65,000 jobs—equal to 40 percent of all jobs in the industry—were in investor servicing and fund administration.¹

In this chapter we take a look at key fund service providers and their role in mutual fund operations, specifically:

• The transfer agent, which maintains shareholder records and provides customer service.
• Fund accounting, which is responsible for the daily NAV calculation and coordinates valuation of portfolio securities.
• Investment operations, which provides information to the portfolio management team and coordinates trade settlement.

THE TRANSFER AGENT

The transfer agent, or TA, is responsible for maintaining records of shareholder accounts and providing customer service to their owners.² Specifically, the transfer agent:

• Processes transactions.
• Provides reports ...