Now that we've discussed what third party administration does, we need to discuss how this protects investors. Because the administrator is involved in preparation of all the capital transactions, performance statements, investor records, audits, and tax forms, they provide third party verification of the entire flow of capital. The administrator sees who the investors are, how much they invest, and confirms transactions in the trading account of the fund, including when new money is deposited, when money is withdrawn to pay expenses, when money is used to purchase securities, and what securities are purchased. Since performance updates are created and distributed by the third party administrator, investors are assured of the validity and accuracy of the performance data. Because auditors often receive their financial information from the administration firm rather than the fund, audits are much less likely based on fraudulent financial statements.
Furthermore, hedge funds and investors benefit in the efficiency of third party administration. Investors and fund managers are provided with tax and accounting services that adhere to tax codes and GAAP regulations, which would be time consuming for fund managers and investors to prepare on their own. Due to economies of scale, hedge fund administrators are able to provide their services for a much lower price than the cost for a fund manager to self-administer.
After reading these last three posts, I hope you are starting to get the point. Hedge fund administration provides investor protection. Additionally, because the use of an independent administrator lowers costs and improves operational efficiency, hedge funds with a third party administrator can also generate higher returns due to lower operational expense. Probably one of the few times in finance where lower risk can mean higher rewards.
FULL DISCLOSURE - HedgeCo Networks owns G & S Fund Services, a full service hedge fund administrator and administration firm. Evan Rapoport is a part owner and co-founder of HedgeCo Networks
TAGS: Hedge Fund Administration, Hedge Fund Administrators, Hedge Fund Accounting, Hedge Fund Performance, Hedge Fund Fraud, Hedge Fund Investors
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Hedge Fund Capital Introduction can be a crucial component to a hedge fund's growth. Most bulge bracket prime brokers offer some form of capital introduction for their larger clients but finding a solid capital introduction program for smaller clients presents a challenge. This site is designed to discuss recent events and updates within the hedge fund marketing/capital introduction space. All contributors with beneficial knowledge are urged to participate.