Arman Salavitabar, CFA

Founding Partner, FundFront

Knowledge

Key Steps to Efficiently Onboard and Manage Multiple Investors Globally Using ICSDs

Introduction

Fund managers must look to streamline investor onboarding and management as much as possible to attract and retain a diverse global investor base. International Central Securities Depositories (ICSDs), such as Euroclear and Clearstream, provide a powerful solution by integrating alternative investment funds into their core settlement and custody systems. Utilising ICSDs can help to improve overall operational efficiency, reduce risk, and broaden investor accessibility.

Using ICSDs also eliminates the traditional inefficiencies tied to manual subscription and redemption processes. This ensures seamless transactions between investors and fund administrators. This approach helps to increase transparency, adhere with international regulations and improve liquidity for alternative investment funds. This article outlines the key steps for fund managers looking to onboard and manage multiple investors globally using ICSDs.

Step 1: Structuring Funds for ICSD Accessibility

Selecting an Appropriate Legal Structure

To fully utilise the ICSD infrastructure, funds should be structured in a jurisdiction that aligns with ICSD requirements, such as the Cayman Islands. The fund must recognise the ICSD nominee structure, whereby fund units are held in the ICSD’s name while beneficial ownership is recorded in ICSD accounts.

Additionally, selecting the right jurisdiction ensures compliance with global regulatory frameworks, reducing legal complexity for fund managers and investors. The Cayman Islands, for instance, provide flexible fund structures that accommodate ICSD accessibility while maintaining investor protections. Other jurisdictions, such as Luxembourg and Ireland, also offer regulatory frameworks that align with ICSD integration.

Obtaining ISINs and Platform Admission

Funds must obtain International Securities Identification Numbers (ISINs) and be admitted to ICSD platforms like Euroclear FundSettle or Clearstream Vestima. This makes fund units transactable and transferable within the ICSD network, providing easy access to institutional investors globally.

By securing ISINs, fund managers can improve fund visibility, enabling global investors to recognise and trade fund units easily. Additionally, admission to ICSD platforms provides fund managers with access to robust settlement mechanisms, reducing transaction friction and enhancing operational efficiency.

Step 2: Streamlining Investor Onboarding

Leveraging Standardised Subscription and Settlement

ICSDs facilitate straight-through processing (STP) for subscriptions and redemptions, reducing manual processing and errors. Investors can place subscription orders through familiar systems, eliminating the need for fund managers to handle individual investor agreements.

STP ensures that fund units are settled in a timely manner, reducing counterparty risk and eliminating delays in fund subscriptions. This allows for efficient capital deployment and improved investor confidence.

Ensuring Compliance with Regulatory Requirements

ICSDs support Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance by centralising onboarding processes through participating custodians and financial institutions. This reduces the administrative burden on fund managers while ensuring regulatory adherence.

By leveraging ICSD networks, fund managers can benefit from pre-established compliance frameworks, streamlining the investor verification process. This not only accelerates investor onboarding but also ensures that funds remain compliant with global anti-financial crime regulations.

Step 3: Enhancing Investor Management and Servicing

Simplifying Fund Administration and Reporting

ICSDs provide automated reporting and reconciliation, allowing fund managers to maintain accurate records of investor holdings, distributions and capital calls.

With automated data reconciliation, fund managers can reduce human error and improve the accuracy of investor statements. This ensures that investors receive timely and precise updates on their holdings. This streamlined approach also minimises the administrative overhead typically associated with manual reconciliation processes.

Facilitating Multi-Currency Transactions

ICSDs enable multi-currency settlement and reporting, allowing investors to subscribe and redeem in their preferred currency. This eliminates foreign exchange risk and simplifies global investment operations.

For global investors, multi-currency support ensures a seamless experience, as they can execute transactions in their home currency without incurring unnecessary conversion costs. Additionally, ICSD platforms offer real-time currency conversion services, further improving flexibility for fund managers and investors.

Step 4: Optimising Liquidity and Secondary Market Access

Enabling Secondary Market Transactions

Through ICSD platforms, fund units can be transferred between investors without disrupting fund operations. This improves liquidity and broadens the potential investor base.

Secondary market accessibility allows investors to exit their positions, providing an added layer of flexibility to alternative investment funds. This feature is particularly valuable for closed-ended funds, where liquidity constraints can otherwise limit investor participation.

Supporting Institutional Custody and Distribution

ICSDs connect fund managers to a vast network of banks, brokers and institutional investors, providing global distribution capabilities that would be difficult to achieve independently.

By integrating with ICSDs, fund managers can tap into an expansive investor network, expanding distribution channels and attracting a more diverse pool of institutional and retail investors. Additionally, the institutional custody services offered by ICSDs ensure that investor holdings are safeguarded under stringent security measures, improving overall trust and confidence in the fund.

Conclusion

ICSDs stand as vital components in the modernisation of alternative investment fund operations, particularly regarding investor onboarding and management processes. Fund managers who properly structure their offerings for ICSD compatibility, implement automated subscription and settlement systems and upgrade investor capabilities achieve notable improvements in operational efficiency and growth potential.

Those embracing ICSD integration experience tangible benefits: streamlined administration workflows, decreased operational risk exposure and simplified investor access pathways. The ICSD framework additionally facilitates regulatory compliance efforts, helping funds meet constantly evolving financial requirements without overwhelming manual supervision demands.

FundFront provides expertise in structuring and onboarding alternative investment products with ICSDs, helping managers navigate the complexities of the process. With tailored solutions designed for efficiency and global reach, FundFront empowers fund managers to optimise their operations and scale with confidence. For tailored solutions, contact FundFront here today.

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Disclaimer

FundFront provides operational and technological solutions for family offices, fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.

Written by:

Arman Salavitabar