How Should a Family Office Assess Custody Arrangements for a Private Fund?

A family office should trace each fund asset to the party holding it, the account or title where it sits, and the records that independently confirm it. The manager's report is one part of that review. You also need to know who can move assets and whether custody is separate from investment decisions where the structure permits.

Trace Each Asset to Its Holder

Ask the manager for an asset-by-asset custody description. For cash and marketable securities, identify the bank, broker, or custodian, the account name, and the legal entity that owns the account. For private holdings, identify where ownership registers, certificates, loan documents, or title records are kept. Ask which assets fall outside the custodian's records and how the fund confirms those positions.

Request account statements, a current holdings report, the relevant fund documents, and a diagram of the entities that own assets. Compare account names with entity names across those records. Ask whether cash sits in a fund account, an omnibus account, or another arrangement, and how the fund's portion is identified. If account ownership does not match the stated structure, ask for a written explanation and discuss it with your attorney.

Understand Who Can Move Assets

Custody and trading authority are different. Ask who can initiate a transfer, approve it, add an authorized user, or change payment instructions. Find out whether the manager can move cash without another party's approval and how the custodian confirms instructions. Ask what records show approval. Find out whether access is reviewed when staff responsibilities change.

Questions to ask include:

• "Which legal entity owns each account holding fund cash or securities?"
• "Who can initiate and approve a transfer, and can one person do both?"
• "Does the custodian receive trade or balance information directly?"
• "Which assets are missing from custodian statements, and how are they confirmed?"
• "How can the fund retrieve statements and transaction history if the relationship ends?"

Richard has described the value of using a third-party custodian and having reported net asset value checked by parties outside the manager. The practical test is whether an investor can compare manager reporting with records from the institution holding the assets. A custodian's name in a presentation alone does not answer that question.

Compare Independent Records

Request statements for a sample period and match account names and dates, then compare holdings and transactions with the fund's books and investor reporting. Ask who performs reconciliations, how often they occur, and how differences are resolved. Find out whether the administrator receives information directly from the custodian or depends on manager-provided figures. For illiquid assets, ask what evidence supports ownership and who reviews the valuation; see how to check that fund assets and valuations are real.

Watch for statements produced only by the manager, unclear account titles, unexplained gaps in transaction history, or one person with unchecked authority over transfers and reporting. A difference is a prompt to investigate and reconcile, not a conclusion by itself. For cash-specific evidence, see how to confirm investor cash is held separately.

Checklist

• List each asset, its legal owner, and the institution or recordkeeper holding it.
• Compare account titles with fund and subscription documents.
• Confirm who can initiate or approve transfer instructions, and who can amend them.
• Match third-party statements to fund books and investor reporting.
• Identify assets without independent custody records and request ownership evidence.
• Confirm the fund can retrieve records if the custodian changes.

Talk with your attorney about account ownership and contractual rights where the documents leave room for interpretation.

Go deeper: What happens to fund operations if its administrator or custodian fails?; How can investors assess a fund's exposure to key vendors or service providers?.

You want the net asset value whether it be daily or monthly to be struck and verified by third parties not just provided by the managers.

Sources: Family Office Club investor due diligence framework, The Family Office Book. Informational only, not financial, legal or tax advice.