Setting the Standards Blog Series: Part 1 The Foundation of Fund Administration for Digital Assets

In the first of this multi-part blog series, Josiah Reich, COO, Fund Services, and Michael Gilman, Director of Business Development, at MG Stover, share the firm’s origin story of setting standards in the fund administration space. This blog highlights our early adoption of standards and how MG Stover embraces these guiding principles for digital assets.

Founded in 2007, MG Stover is a long-time full-service fund administrator, now part of PolySign, with service teams across North America. Having quickly established ourselves as a premier boutique service provider for emerging fund managers in traditional asset classes, in 2014 we entered the world of digital assets. As we dove into the space, MG Stover’s goal was to deliver the same high standards of quality and accuracy that investors expect from TradFi funds to digital asset funds. Once we started navigating this new asset class, we identified many challenges that would need to be overcome. Because the industry was in its infancy, many practices and standards would need to be set and agreed to by a multitude of stakeholders including fund managers, attorneys, auditors, and tax advisors. We held firm that collaboration across all participants would be key to developing the institutional practices required to build a flourishing digital asset fund ecosystem. This ecosystem would need to be built on a solid foundation of trust, technology, and expertise.

An example of an early challenge we successfully navigated was establishing UTC midnight as the standard time for asset pricing and fund Net Asset Value (NAV). Since digital asset markets are global in nature and allow for 24/7 trading, the firm collaborated with our clients, digital asset exchanges, and other fund service providers to establish the midnight UTC reporting standard. This quickly became an industry practice that continues to be used today by fund administrators, exchanges, and custodians. Moving beyond the valuation cutoff determination, we tackled other issues confronting the nascent digital asset space. Another achievement was collaborating with the earliest digital asset exchanges to establish a flow of client trading data that could be used by MG Stover to independently calculate our clients’ NAVs. In a matter of a few years, digital asset market participants, led by MG Stover, have established a technology infrastructure that today enables a reliable straight-through process to capture trades, reconcile positions, and produce timely and accurate reports to our clients and investors. By developing an institutional process for digital asset fund operations, our clients have built trust with their investors, enabling them to raise billions in capital that have funded some of the most important blockchain technologies of our generation.

Today, MG Stover continues to lead the digital asset fund administration industry with technology solutions. High-quality data is integral to an alternative investment fund, as it is the starting point for a multitude of fund processes in the front and back office and is relied upon by other stakeholders such as auditors and tax preparers. Our technology teams have built several platforms that enable the systematic processing of digital asset trading data in an automated fashion. This allows our team to perform the accounting for complex client transactions in a traditional portfolio accounting process that is auditable and reliable. As the digital asset markets continue to evolve and develop, we are building the next generation of technology capable of interfacing with DeFi protocols and decoding smart contract transactions commonly deployed by today’s fund managers. Earlier this year, MG Stover received industry recognition for our win in Hedgeweek’s US Digital Assets award for Best Administrator – Technology, demonstrating our excellence and long-running contributions to developing standards and solutions.

In addition to being a trusted partner that leads with technology, MG Stover leverages industry-leading expertise that is necessary to successfully administer today’s complex digital asset funds. Broadly, digital asset funds are extremely complex due to nuances of the asset class. Many funds require side-pocketing, entail challenging fee arrangements, and have complex legal structures. Our service teams are led by experts with deep institutional knowledge of traditional fund servicing as well as digital asset accounting. They provide both the structure needed by fund managers to navigate these challenges, as well as the credibility required by fund investors, new entrants, and crypto natives alike. Our commitment to building expertise is illustrated by our ongoing industry training and education which is a core part of the continual development that our service teams need to stay abreast of changes in the industry. As experts in both fund administration and the digital asset class, we partner with our clients, becoming an extension of their team and therefore believe that it is critical that our personnel understand the nature of our clients’ trading strategies. It is this expertise that enables our service teams to provide better client service, identify risks early on, and be solution oriented when tackling challenges with our clients.

Coming up in our next blog, find out how MG Stover continues to be at the forefront of the industry creating solutions that address the explosion of DeFi activity, best practices for digital asset fund management, and building collaborative relationships amongst other industry-leading firms.