HEDGE FUND: CONTRACT TERMS FROM ADMINISTRATORS ARE UNDER THE SPOTLIGHT
Centaur believes that the core function of a fund administrator is to partner with fund managers in providing investors with the security and transparency they need. Fundamental to this is Accountability.
Over the past few years, the industry has seen many Administrators move their contractual goal posts. This has created a tipping point for Fund Stakeholders (Managers, Investors and Directors), who are migrating towards administrators who take full accountability and responsibility for the provision of accounting, investor and regulatory services.
Some of these changes have been subtle. For example, there has been a creeping move in many contracts from a simple ‘Negligence’ standard to ‘Gross Negligence’ in order to protect certain administrators if they fail to exercise reasonable care. Many Fund Administrators now also cap liability to a multiple of fees earned, so they ultimately cap their risk liabilities, leaving Stakeholders exposed. Centaur believes that this steady rise of protective legal language in many service provider contracts is a reflection of some Administrators’ move away from taking responsibility for their services.
Additionally, AIFMD provides that valuations must be performed by the Investment Manager unless an External Valuer is appointed. The obvious port of call for this appointment should be Administrators but many are refusing to accept these responsibilities due to concerns over increased liability. This leaves managers having to carry out the process internally, taking them away from their core skill set and creating potential conflicts.
Centaur’s position, which is in marked contrast to many fund administrators, is to meet investor demands for a clear separation of the valuation process from investment managers while complying with AIFMD. Regulation is imposing more liability on Managers and Directors than ever before. As a result, they are now forensically assessing contract terms being offered by their service providers. Accountability has become a key requirement within these terms and Centaur expressly contracts to be accountable.