How Adding Transparency Can Position Your Fund for Growth
In today’s fundraising environment, fund managers are not only faced with significant competition for investors, but also increasing skepticism from investors. One possible reason for this increased caution? Ponzi schemes.
Bernie Madoff grabbed headlines in 2008 when he was arrested after defrauding investors of an estimated $17.3 billion, but Ponzi schemes continue to proliferate. According to ponzietracker.com, a website that tracks the occurrence of Ponzi schemes, 277 such schemes were uncovered between 2012 and 2015, totaling approximately $8.3 billion. Investors have taken notice, and are demanding that the funds in which they invest employ the proper checks and balances—and service providers—to help create layers of transparency.
In the wake of the Madoff scandal, the Securities and Exchange Commission (SEC) amended the Custody Rule under the Investment Advisers Act of 1940 to strengthen controls over the custody of assets and to encourage the use of independent custodians. The SEC believed that these changes would increase investors’ confidence, and, “in particular, increased investor confidence could lead to more efficient allocation of investor assets, which could result in an increase in the assets under management of investment advisers and, depending on how those assets are invested, a potential increase in the availability of capital.”
When fund managers choose reputable and experienced service providers, including custodians, auditors, accountants, attorneys and administrators, they can increase transparency into the operations of the fund, which can increase investor confidence. Instead of looking at service providers as an added expense, fund managers should consider them valuable partners that can position their fund for success.
Managing expenses is important for any business, but it can be especially true for an investment fund that is just starting out or is trying to increase assets. But reputable service providers, including qualified custodians like Millennium Trust, can offer significant value to a fund.
To learn more about the roles that a custodian and other service providers play, and how they can help add a layer of transparency that can attract investors, read our latest white paper, “The Case for a Custodian”.
The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.