Administration & Management

The future of fund administration

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Fund administration and the role of the transfer agent sits at the heart of today's mutual fund industry. The transfer agent's fundamental role is to administer the register that records each investor's holding of units in a fund, providing a 'single source of truth' for all participants in the mutual fund value chain. This is the critical enabling role that allows the industry to operate effectively and comply with regulatory requirements. Transfer agents therefore form a vital nexus in a web of mutual fund participants, all of whom send and receive large volumes of data to and from each other for the market to function.

This paper examines how the modern transfer agency (TA) has evolved and the challenges faced in today's dynamic funds market. What opportunity does digital transformation offer as the industry looks to the future and pursues a need to provide new levels of service, product, and value for the investor. Given the importance of the TA to the funds industry, it is crucial that this vital link is built to support the ever-increasing pace of innovation that is driving the future of collective investments.

The evolution of fund administration

No one designed today's mutual fund ecosystem. It grew like a coral reef through a process of accretion. Thirty years ago, private investors would subscribe directly to mutual funds using coupons clipped from newspapers and magazines.

Later, online investment platforms and other distributors built mutual fund 'supermarkets' for retail investors and their advisers. Their growth hugely expanded retail access to the growing universe of mutual funds and created a critical sales channel for asset managers. From the TA perspective, however, the emergence of these new intermediaries placed growing demands on them to support more complex data flows and commission frameworks, as fund distribution changed and the number of participants in the market increased.

At the back end, meanwhile, TAs must interact closely with fund accountants, custodians, and depositaries, tallying the daily subscriptions, redemptions, dividend payments and safekeeping the fund's underlying assets, as well as acting to protect the interests of the assets' ultimate owners: individual investors.

Within this extended ecosystem, the TA stands out, both as the critical link in the mutual fund value chain and as the industry's primary point of contact. TAs are therefore hugely important in ensuring the industry delivers excellent customer service to investors, a fact that asset managers and distributors are becoming increasingly aware of.