6th January 2015
There is a growing trend for major banks to drop smaller hedge fund clients (AUM sub $500m), often with short notice periods.
“This is a trend we have been observing over the last year or so and the rate of change has accelerated markedly in the last few months. As a result of large banks cutting off smaller hedge fund clients, managers (and investors and board directors) must deal with the short term disruption of changing administrators,” says Karen Malone, Founding Partner of Centaur Fund Services. “In the longer term, however, funds are benefitting from this trend, as they are ultimately partnering with more appropriate service providers.”It doesn’t stop there: There is a trend of some of the larger bank backed administrators to offer incredibly cheap short-term deals for new and smaller managers. She continues, “Whilst initially this may appear tempting to some funds, the managers quickly realise that client service is often weak and in some cases funds are terminated if they don’t reach certain thresholds. Also, the cut price deals typically only last 12 months at the most and we are seeing lots of funds and managers being presented with huge fee increases after a relatively short period of service.”As a result, managers are seeking out more suitable service providers who are focused on boutique hedge fund business and are offering a more collaborative approach between the administrator and client, backed with superior service compared with the large banks.
2. Due Diligence Set to Grow
An administrator’s reputation begins with the due diligence process. Due diligence requirements have grown in recent years and there is little doubt that this demand will continue to increase for Administrators in 2015 and it will principally be investor-led.“The increase in due diligence is mainly driven by investor groups demanding proof that Administrators are credible, well run and deliver a robust client service. As Investors continue to sit in the driver’s seat in the decision making process around Administrator choice, there remains a strong and clear desire for evidence of independent and accountable third party Administrators.”3. Steady Rise in Regulatory Reporting
Demand for regulatory reporting, such as AIFMD, FATCA, SEC registration and Dodd Frank was strong in 2014 and is set to grow in 2015. This has offered growth opportunities for Administrators who have adapted and diversified to expand their service offering.“Centaur assists and advises clients on every aspect of regulation, including AIFMD. We are constantly adapting to support clients as they race to keep up with regulatory requirements. For example, we have recently seen a surge in demand from managers to supply data required for Annex IV reporting,” says Karen. She continues “In 2015 we expect to see growth in this area of our business as we continue to help managers shoulder their increased reporting burden.”4. Administrators to Become Key Partners to Funds and Managers
As Management fees continue to fall, Fund Managers are increasingly looking toward their Administrators to become key business partners and to provide cost-efficient service solutions. This operational cost efficiency is being achieved primarily through technology improvements and new services.
Karen says, “Centaur has developed a suite of tools to enable managers to achieve higher levels of operational and cost efficiencies. We pride ourselves on delivering accurate, timely and transparent reporting to all stakeholders while continuously focusing on how fund managers can run their business more cost-effectively.”
5. Increased Demand for External Control Audits
Compliance has been a big feature for 2014 and is set to become even more prominent in 2015 as the industry experiences an increased demand for service organisations such as Administrators to have External Control Audits (like ISAE /SSAE) on their entire business.
“It seems that yet more compliance changes are coming down the line in 2015 and beyond. This has been driven primarily by the need to standardise global practices of Administrators. As a result, we will see Fund Administrators undergoing External Control Audits on every aspect of their business.” says Karen.
Karen concludes, “2015 is set to be an exciting year for Fund Administrators as we see significant developments within our industry. The opportunities ahead for Administrators are many and Centaur is positioned to provide Managers with a solution that evolves with the market. We have experienced substantial growth year on year, and we envisage this trend to continue for 2015 and beyond.”
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