- December 20, 2016
- Posted by: Vincent Sarullo
- Category: Direct Lending, Family Office, Fund Administration, Fund of Funds, Hedge Funds, Private Equity / Venture Capital, Real Estate, Reference Materials, SMA, Tax Liens
Here are the reasons why a fund administrator should be the authorized signatory on a fund’s operating bank account(s).
1 – The administrator is taking on the responsibility of AML/KYC. This has to be done before accepting the investor and investing with his money.
2 – It provides investors with comfort that there is separation of duties and that only an independent 3rd party can move the money. The most common cause of fraudulent activity charges brought by enforcement agencies, as they relate to investment funds, has been improper cash movements by fund managers.
3 – An administrator can verify that payments being made by the fund are actually fund expenses in accordance with the offering documents to which the investors have agreed to.
4 – It relieves the fund manager of the day to day inputting/releasing wires and record-keeping.
5 – It reduces the back and forth related to record keeping and providing support for transactions for accounting purposes.
6 – It is standard practice in foreign jurisdictions where fund administration is requirement and regulated by government entities. Although it is not required or regulated in the United States, reputable fund administration firms will take on the same responsibilities for the aforementioned reasons.
7 – There is a shrinking number of banks in the United States that are willing to service alternative investment funds. The requirement for banks who knowingly serve this space, will be to have an independent fund administrator who is the authorized signatory on the account.