What Does "Assets under Administration" Mean?

“Assets under administration” is a financial term that describes a situation wherein a bank or other third party maintains and accounts for the funds of a specific investor. All of the money that is “under administration” is still within the investor’s control. The administrator usually acts as a security measure. Administrators double-check investment logs and exchange books to make sure that the reported value of the account is accurate, and also keeps the money safe and separate from other holdings. This sort of arrangement is most common with major investment portfolios, usually hedge funds and mutual funds.

An asset administrator is essentially a fund guardian. Most of the time, banks and public financial institutions perform these services. A trust company or private investment firm could do the same, but this is more rare, in large part because of the safeguarding aspects of the task. By placing assets under administration with outside banks, fund operators are able to prove to their investors that the money is being honestly accounted for and guarded. Most banks are regulated by governmental agencies, which gives them a more detached, neutral stance when it comes to accounting.

The main job of a bank holding assets under administration is to keep accurate books. When funds are reported traded or exchanged, the administrator must verify the accuracy of the transaction. Administrators also generally manage tax records and reporting.

One of the characteristic traits of assets under administration is that an asset owner remains the beneficial owner of all of the money in the administered account. Even though money may be held and checked by a bank, the original manager — the person or entity who established the administration relationship in the first place — still generally has complete autonomy over how assets are shuffled, spent, or traded. The bank’s sole job is to keep an accurate record, and to report that record to shareholders, investors, or other interested parties in a timely and precise way.

In this way, assets under administration are very different from assets under management. Managed funds are usually structured such that the manager is not only the custodian of the account, but also the account’s active manager. This typically means that the holding institution can make investment decisions on behalf of the owner, which usually includes the power to dictate how funds can or will be distributed or converted. Sometimes this is expressed as unilateral control, but can also come as a veto power or a checking mechanism.

Banks typically publish the total value of all of the assets that they hold in an administrative capacity. The larger the number, the more prestigious the institution is usually perceived to be, and the more likely it is to attract other wealthy investors. Administrators usually assess a fee for their services that is equivalent to a certain percentage of the fund’s total worth, which makes the relationship profitable, as well.