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Hedge Fund Administration Agreement

Hedge Fund Administration Agreement: What Investors Need to Know

Hedge fund administration agreement is a legal contract between a hedge fund manager and an administrator, typically a third-party service provider. The agreement outlines the services the administrator will perform for the fund, including accounting, reporting, compliance, and investor services. It also specifies the fees and expenses the administrator will charge for its services and any obligations and responsibilities of the fund manager.

Investors in hedge funds should pay close attention to the administration agreement as it can affect their investment returns and risks. Here are some key considerations for investors:

1. Service Level and Performance Metrics

The administration agreement should specify the level and quality of services the administrator will provide, such as timely and accurate accounting, reporting, and compliance monitoring. It should also include performance metrics or standards that the administrator must meet, such as turnaround time for investor inquiries or error rates in financial statements. Investors should review these provisions to ensure that they are reasonable and sufficient for their needs.

2. Fees and Expenses

The administration agreement should clearly state the fees and expenses that the administrator will charge the fund. These may include a base fee, a performance fee, and/or reimbursement of expenses. Investors should compare the fees and expenses to industry benchmarks and consider whether they are reasonable and competitive. They should also review the fee calculation method and any fee breakpoints or caps to understand how their costs will vary with the fund`s size and performance.

3. Liability and Indemnification

The administration agreement should address the liability and indemnification of the administrator and the fund manager. It should specify the circumstances under which the administrator may be liable for errors, omissions, or breaches of duty, and the extent of its liability. It should also describe the indemnification provisions, which may require the fund or the manager to compensate the administrator for any losses or liabilities arising from its services. Investors should understand the potential risks and costs of such provisions and seek legal advice if necessary.

4. Termination and Transition

The administration agreement should include provisions for termination and transition of the administrator`s services. It should specify the notice period, the conditions for termination, and the process for transferring the fund`s data and records to a new administrator. Investors should ensure that these provisions allow for a smooth and timely transition without disrupting the fund`s operations or investor relations.

In conclusion, hedge fund administration agreement is a critical document that investors should review carefully and seek professional advice if needed. By understanding the key provisions and risks, investors can make informed decisions and protect their investments.