Changing a fund administrator is never an easy decision. It requires hands-on management, time to properly conduct due diligence, negotiations, transition management, and ongoing monitoring of service levels with your new service provider. Fortunately, by choosing the right fund administrator, they can help make the transition as seamless as possible with no decrease in service level and minimal disruptions to investors.
Krypton Fund Services (“Krypton”) offers transition service by utilizing a highly trained dedicated transition team lead by an experienced senior manager to navigate efficiently through the intricacies of the transition process. Krypton outlines below key planning considerations when changing your Fund Administrator.
Managing your Outsourcing Risk
Prudent managers need to understand and manage all risks arising in their business, including outsourcing risk associated with third-party service providers. To mitigate this risk, the manager must take care and conduct appropriate operational due diligence when selecting a new fund administrator for their Fund. The Manager should look through the Administrator’s name, their marketing material, or the word of their referral source and obtain a real understanding of the Administrator’s core values, industry credentials, service model, technical expertise, and their depth of experience. No one size fits all. Experience shows that a true partnership with your fund administrator is where trust and accountability are at the forefront of a great service model. The Manager should also understand who they will be dealing with daily and not the person that is selling them the service.
As part of the due diligence process and to facilitate a smooth transition, the Manager will need to also consider their fiduciary obligations to all stakeholders, particularly the investors of the Fund. Consideration needs to be given to advising key investors before the final selection. These investors will also need to manage their risk and may want to conduct their own due diligence to mitigate their operational risks.
Krypton recognizes the importance of mitigating outsourcing risk and always offers sufficient time and information for the Manager and Investors to conduct full due diligence. In turn, sets the foundation for building trust and a successful business relationship.
Prepare a Comprehensive Transition Action Plan
Appointing a new fund administrator who is knowledgeable and capable of preparing a comprehensive transition action plan is critical to a successful transition. The transition action plan should address all essential operational, legal, governance, and regulatory considerations.
Some examples to be considered are detailed below.
Operational Considerations
An essential operational planning consideration is the orderly and timely transfer of knowledge and data from the outgoing administrator before their resignation date. The process should begin by the receipt of both physical and electronic data from all sources. The data should be reviewed and integrated into the new administrator’s workflow and technology system. Also, all investor records and capital activity documents are required to be inventoried for completeness and reviewed to ensure all AML/KYC documents are current. If files are incomplete re-documentation may be necessary. Similar procedures are required for the Fund’s accounting records. A full review of the Fund’s NAV calculated by the outgoing Fund Administrator will be undertaken to ensure consistency with the terms disclosed within the Fund’s Offering Memorandum.
It is also essential that the Manager, together with new and outgoing Fund Administrator agree on transition procedures so that each party is clear on their responsibilities. These will include clarifying year-end audit responsibilities, interim capital activity processing, interim calculation, and distribution of NAV during the transition period.
Other operational considerations include coordinating the new administrator’s access to prime broker data and reports and the Fund’s bank account. If the new administrator is contracted to perform cash management duties, such as receipt or disbursement of subscriptions/ redemptions proceeds and payment of fund expenses, then it will be necessary to transfer access to the Fund’s bank account or establish new bank accounts. Many financial institutions have robust compliance requirements when changing access or updating signatories to the funds’ bank account. Therefore, this process must be initiated early on within the transfer process.
Legal, Corporate Governance, and Regulatory Considerations
A well-experienced fund administrator will be able to steer the transition process, provide quality advice, and ensure all legal, governance, and regulatory considerations are addressed. These factors will be resolved well in advance of the live date and before the resignation of the outgoing administrator.
Legal considerations include finalizing the new administration agreement, ensuring full contractual responsibility for services provided, ensuring the Offering Memorandum or Supplement is updated by the Fund’s counsel to disclose the change in administrator, and subscription agreements are updated for the new Administrator’s subscription and redemption process. Notification to all existing investors of the change in administrator, along with the updated fund documents should be sent to investors on a timely basis.
Corporate governance considerations include having the Fund’s Board of Directors approve the appointment of the new fund administrator, approving amendments to the Fund’s Offering Memorandum and subscription agreement, approving any regulatory filings notifying the authorities of the change in administrator, approving the opening of any new bank accounts, authorized signatories, closing of old bank accounts, and accepting the resignation of the outgoing fund administrator.
Regulatory considerations include compliance with all regulatory requirements, notifying and submitting to the Fund’s regulatory authorities the executed documents when approved by the Fund’s Directors, and consent letter and other required documents within the prescribed time frame.
The senior management team at Krypton has managed many fund structure transitions and able to ascertain the requirements and plan for a successful transition. Krypton utilizes a tailored Transition Plan and Action Checklist, which is customized specifically to the Fund and the Manager’s operations. This enables Krypton to accurately control the transition process from set-up, to parallel processing, to cut-off, and finally to live processing. Krypton Senior Manager will use the Transition Plan to monitor progress against targets and will add resources where required or adjust the plan for any required corrective action. Periodic status updates will be provided to the Manager and address any Manager concerns as they arise.
About Krypton Fund Services
Krypton is an independent administrator with a premium service-based model. We deliver on our obligation to serve our clients and their investors with first-rate market service. Providing this market-leading service by utilizing a unique blend of strategic servicing and market-leading technology. We are committed to the highest standards of service as a strategic business partner; we pledge these same standards for our clients and their investors.
Krypton has offices in Bermuda, Mauritius and Singapore, with strategic plans to expand its offices worldwide to provide a global service solution to its clients.
Krypton Fund Services (Bermuda) Ltd. is licensed by the Bermuda Monetary Authority under the Investment Funds Act 2006. KFS (Mauritius) Ltd. is in the process of being licensed by the Mauritius Financial Services Commission. Krypton offers customized administration services by combining an innovative global service model with expert staff and robust technology. Krypton’s global service model provides a flexible delivery solution enabling Krypton to meet the specialized needs and local responsiveness required by its clients.
Krypton is led by its CEO and founder, Roderick White, who is a Chartered Professional Accountant with over 15 years of fund administration experience. For more information, please contact Rod by telephone at +1 441 338 5285, by email at [email protected] , or visit our website at www.kryptonfs.com .