Knowledge Center

Shadow Administration

10/2/2014
Alternative Investment Solutions
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Business Challenge

Shadow administration, a practice where more than one party tracks the fund’s activities while only one maintains the official books and records, has stepped into the spotlight in recent years as hedge funds have called for increased due diligence amid new regulations. Whether a fund is serviced by an in-house accounting department or through a third party administrator, shadow administrators can act as a complement to current business procedures.

Only a few years ago the concept of utilizing a shadow administrator to tie back to the official books was reserved for large institutional fund managers who needed to satisfy independence requirements for key investors. Some saw the shadow administrator as a luxury for those funds that had critical mass, while others saw it as a nuisance that duplicated efforts and increased overhead costs. One of our clients, however, saw its value and enlisted U.S. Bancorp Fund Services in 2007 as its shadow administrator to provide fund accounting for its various products, including international equities, equity swaps, and private equities.

Our Solution

Many in-house back office accounting departments rely heavily on Excel-based tools, workbooks, and utilities to keep track of and report key figures. These systems may make it difficult to extract required data to meet FATCA, AIFMD, Form PF, CPO, PRQ, CTA-PR deadline, and compliance requirements.

Our Alternative Investment Solutions department implemented a shadow administration solution to complement our client’s internal back office department. We provide the resources and expertise to deliver daily P&L, exposure reports, attribution reporting, and NAV reconcilement, as well as ad hoc requests for holdings reports related to Basel III and 13F information.
Utilizing U.S. Bancorp Fund Services for shadow administration allows our client to focus on the internal demands of growing its business, while we provide backup and scalability solutions as an independent service provider. Our shadow services speed up the month-end process, provide enhanced reporting, and offer the key benefit of providing independent checks and balances, all while allowing our client to operate with fewer employees.

Result

U.S. Bancorp Fund Services shadow administration services allow our client, which now has approximately $2 billion in assets, to adapt to transparency needs, satisfy investor requirements, and aid in compliance issues.

Our client now has the ability to leverage existing technological platforms to aid in daily or monthly deliverables, focus on time consuming tasks, and further expand its business. Shadow administration has emerged as a viable solution to many of the challenges facing asset managers, and adds value to both the investor and the manager.

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