Do all hedge funds need an administrator?
While domestic hedge fund managers generally are not required by law to hire an independent administrator, there is no good reason not to retain one, and many good reasons to do so. Sophisticated investors expect that all accounting and related functions will be outsourced to an independent third party administrator. Due to the heightened legal risk, some prime brokers, audit firms and law firms will not work with hedge funds that do not retain a third party administrator. Managers who handle these administrative matters in-house may be at a competitive disadvantage. Even some notable hold-outs, including several of the largest hedge funds in the world, have succumbed to investor pressure and hired outside administrators after years of preparing the fund accounting internally.
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