Help needed - admin process for alternative investment

[takumi]

Hey guys,

Anyone can direct me to find out this side of the world? I've spent ages and yet can't
find anything.....

I've google any key word i can think of......I read thousands of articles on what is
alternative investment but yet anything tell me how custodian process them. e.g. custody..operating flow etc.

I do not expect someone to do my research for me....
but any one can show me the light will be much appreciated.

Thanks heaps.

Charles

 

[Super I]

The term alternative investments is really a "catch all" for every type of investment that doesn't neatly fit into another area. I've heard it used to include hedge funds, venture capital, private equity, commodity based investments, etc.

You need to specify which type of investment and specifically what adminsitrative aspects you are looking at.


For example, a hedge fund that does long equity only is going to look a lot like a mutual fund without all of the regulatory BS.

Private equity on the other hand, has a discrete number of larger investments, that don't "flip" as frequently, and from a back office perspective it's more accounting than admin/operations since most investments are in privately held companies, so no custodians, clearing banks, etc.

 

[takumi]

Firstly, thanks for even responding this thread

I understand alternative investment is a one for all kind of terms...no "correct" definition so far.

In terms of being specific, umm private equity, timber and mayber property/infrastructure are the ones I'm looking for. no hedge funds.

In terms of context, from a custodian's point of view (custodian nowadays does all the back-office already, at least in Australia.) so that includes fund admin, accounting and custody, clearing settlement etc.

The problems is......where can I look for this kind of information. I'm asking this also because in the future if I'm to apply for other position and I need these more area-specific type of information, how should I approach?

 

[Super I]

Custodians are typically involved in situations where you have publicly traded securities, or they are providing "servicing" (ie holding mortgages that make up an mbs and handling billing, collections, going after delinquencies, etc.)


Private equity has none of this. It's just like when a company invests in a joint venture, or buys a controlling interest in a corporation. If it's not actively traded it's just a book entry (since in most cases there are no longer physical stock certificates) recorded thru the registrar and transfer agent of the company. There isn't a role for a custodian here. I suspect it's the same for timber and property, but I'm not sure.

Custodians are used when they provide servicing as described above, for largeer (in terms of number, not necessarily dollar) diversified portfolios owned by companies that are not self clearing, or perhpas in the case of secured lending where a custodian acts as an intermediary between a borrower and lender (look at triparty repo).

I invite others who read this to jump in and correct/clarify anything I've said.

What you've described as a custodian's role in Australia is basically the same in the US, but their clients primarily consist of mutual funds, hedge funds, banks, portfolio/investment managers, and it's all because theri are very specific regulatory issues, as well as logistical economies of scale in order to effectively handle the trading and recording of public security trading and processing. As I said, private equity in general is outside of that realm, as would be any other business that invests in non-public securities.

You might be able to find out more from a custodian's perspective by looking at the websites of banks/brokers that do this . Perhaps look at pershing.com as a start and see if that helps. They discuss the different types of clients that they service.

 

[takumi]

"Custodians are typically involved in situations where you have publicly traded securities, or they are providing "servicing" (ie holding mortgages that make up an mbs and handling billing, collections, going after delinquencies, etc.) "

ummm, yes and no. I guess it's the evolving nature of all the business, custody has change from time to time and is no longer service "public traded" securities only. As far as I know, all custodian down here service unlisted unit trust and property group.
Another thing to clarify before jump into example, there are many stages in executing a
trade as most of the back office ppl would agree. Therefore, how you define service/support is quite important.

For example, for property investment. You can do the most simple custody for it - that is, keeping the title deed. Or perhaps, settle the money transfer. Surely there are most to do....but that's part of the "support" as well.

Another example, for mutual funds and etc. tasks a back office do is not "just" executing the trade...performance, compliance check is also part of the job which is called fund admin and is included in so called master custody.

Lastly, timber and private equity.....oh well let's just say, you gotta do what your clients wants you to do...isn't it?


The problems now is, for all competitors within the same landscape, they will not provide you any information on how they do things. And ppl outside the custodian are not interested.......that's why this kind of information is hard to find.

 

[Super I]

I still think that what I described covers the vast majority of what custodians do.

You mention unit trusts.. if that's the same thing as what we call a unit investment trust it's just an investment vehicle that holds, once again, publicly traded stocks and bonds.

Any company can pretty much oursource ANYTHING. In your mutual fund example of fund administration, I'm sure that thee are smaller fund familys that outsource much of the middle and backoffice work, but I would guess that many of the larger firms do it all inhouse.

I'm not really sure I understand what exact info you're looking for. What software packages they use? What their spreadsheets look like? What types of customized and standardized service and reporting options they provide? The fact that you are on this board means that you don't want to work in that area, and if the custodian is doing a good job, then everything should be completely transparent to the user, with just final reports covering whatever they do being provided.

As I suggested, look at websites for firms that you know provide this service, google around and you might find a pdf of a brochure from some presentation buried somewhere on the net. I know that here in NYC there are periodically fund/investment conferences that have vendor showrooms with providers of these services present. If they have those where you are you might be able to sneak into the vendor room, since most people are paying for the conference part, and vendors have avested interest in speaking to anyone who might find their services to be of use this area might not require a conference ID badge.