[Editor’s note: This is a blog post from Millennium Trust Company. Millennium Trust Company is a silver sponsor at LendIt Fintech USA 2018, which will take place on April 9-11, 2018 in San Francisco.]
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 stunned the financial industry in 2008 when he was arrested after defrauding investors of an estimated $17.3 billion. But Ponzi schemes continue to grab headlines. According to ponzitracker.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 are now demanding that the funds in which they invest employ the proper checks and balances—and service providers—to help create layers of transparency.
In 2009 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 experienced service providers, including custodians, auditors, accountants, attorneys and administrators, they can increase transparency in the fund, which can in turn promote investor confidence. Service providers can be much more than just an added expense; they can be valuable partners that can help position the fund for success.
Sometimes fund managers look at hiring service providers as just another expense. But in today’s competitive fundraising environment, fund managers are also looking for ways to position their fund for success. Experienced and reputable service providers, including a custodian, can help create an environment conducive to attracting additional investors, helping the fund achieve fundraising goals.
To learn more about the role that a custodian and other service providers play, and how they can help add a layer of transparency that can attract investors, read Millennium Trust’s latest white paper, “The Case for a Custodian”.