The fifth of a six-part guide by Dermot S.L. Butler, Chairman of Custom House Administration & Corporate Services Limited (Custom House).
Who is the Client of the Administrator - The Manager or the Investor?
The answer is, of course, 'Both', but only so long as the Fund Manager is fulfilling its responsibilities to the Shareholders. Ultimately, although the Administrator may have been selected by the Fund Manager, the Administrator's contract is with the Fund. Thus, the Administrator has been retained by the Board of Directors of the Fund to act for the Fund and, as such, the Administrator has a fiduciary responsibility to look after the interests of the Shareholders.
When it comes down to it, the Administrator has a variety of responsibilities, including, for example, seeing that the Fund complies with its investment restrictions and seeing that one Shareholder is not treated differently to another. The Administrator, of course, has a conflict of interest here because it gets paid by the Fund and, if it takes a drastic step, that may upset the Fund Manager, then it could lose the contract.
But it is better to lose the contract than to lose your reputation.
At my own company, Custom House, we have, in the past, been instrumental in closing Funds where we thought that the investment strategy had got out of hand or, on a couple of occasions, where the Net Asset Value of the Fund had been decimated by trading losses, with the result that the operating costs of the Fund were untenable. We, therefore, took steps to persuade the Investment Manager to close the Fund.
I am glad to say this is a very rare occurrence and, for the most part, the Administrator's responsibilities and duties to the Shareholder, coincide with the Fund Manager's. This is because the vast majority of Fund Managers are honest and have integrity, regardless of the impression you may get from the press and the Administrator and the Fund Manager are almost always able to work together in the interest of the Shareholders.
Dermot S.L. Butler is Chairman of Dublin-based Custom House Administration & Corporate Services Limited ("Custom House"), a company that specialises in assisting clients in the organisation, establishment and administration of alternative investment and hedge funds. Custom House is regulated by the Irish Financial Services Regulatory Authority ("IFSRA"), and authorised under Section 10 of the Irish Investment Intermediaries Act, 1995.
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