Real Fund Administration versus NAV Lite

This post discusses the key differences between the two approaches to fund administration.

I am often asked the question from new hedge fund managers who are comparing fund administration firms “What is NAV Lite and how is it different from what you do?”  My first comment is along the lines of “Well, one is fund administration and NAV Lite isn’t.”  NAV Lite can fall into two buckets for the most part: one being that the administrator reviews a NAV produced by the Fund Manager with a cursory check against the broker statement; and the second more common practice is for the administrator to take the ending value in the brokerage account and allocate that value to investors.  No other activity is handled or reconciled by the administrator.  Many times the administrator only delivers a schedule of investor accounts for the fund manager to deliver to their investors.

On the other hand with true fund administration, the administrator would be responsible for handling the back office operations of the hedge fund.  This would include taking responsibility for all aspects of the NAV production and direct reporting to the investors.  For hedge funds this would encompass review of investor subscription documents with cash inflows, plus redemption requests and payment to investors in accordance with the fund’s offering documents.  The administrator would be capturing all trade activity and reconciling this activity to the broker with independent valuation of the portfolio at the NAV reporting date.  Additional responsibilities would include payment of fees and expenses of the fund, anti-money laundering monitoring, and audit coordination.

When comparing the responsibilities of the administrator between the two approaches you would expect there to be a material cost difference and in most cases there is.  But it doesn’t have to be.  There are quality third party administrators that provide full fund administration at a reasonable cost and the benefits will pay dividends to you and your investors.

Written by Vincent M. Sarullo



Leave a Reply