Tue, 07/08/2007 - 16:23
Fund administration companies, like the funds they manage, come in all shapes and sizes. The spectrum ranges from boutiques in one particular jurisdiction and mid-size independent firms to global custodians and the administration arms of private banks, as well as specialist departments of trust companies and law firms. All have a part to play in the dynamic world of offshore fund administration and in the burgeoning Guernsey fund services industry.
Whatever the size and structure of the administration firm, its ability to survive and thrive is dependent upon a willingness and ability to undertake continuing strategic investment in people and technology, backed by a long-term corporate commitment to the fund administration business. This is especially true for administrators that service the alternative fund sector.
The global fund industry itself accommodates an enormous diversity of structures, strategies and investor profiles, from retail funds with thousands of unitholders to private equity and venture capital vehicles that raise funds as required through capital calls, and hedge funds and funds of hedge funds with multi-class series accounting.
For the most basic structures, net asset values can be calculated on spreadsheets and unitholder recordkeeping carried out through off-the-shelf database software, applications that have long been the staple technology for valuations and general company administration among smaller administrators. Other companies have used legacy custody systems for administration functions, bolting on software applications as needed.
But other administrators have opted to make significant technology investments year after year to meet the much more demanding requirements of many hedge funds and funds of hedge funds today. Administrators may be called on to handle investment manager and prime broker trade fees, multi-currency and multi-share class master-feeder structures, and series accounting or equalisation shares to calculate performance fees, and to service corporate or partnership structures across multiple GAAP standards, along with the associated tax reporting.
But investment in people is no less important than technology. Today's increasingly complex fund structures and sophisticated strategies call for the deployment of a highly-skilled administration team capable of understanding the fund's operation and working as a strategic partner with its sponsor. This issue is complicated in the offshore centres that dominate the alternative administration sector by tight labour markets that require great efforts on the part of administrators to attract, retain and develop the skills of their staff.
The importance of technology and people and the size of the ongoing investment required require a long-term corporate commitment. Administrators unwilling or unable to make this commitment are likely to see their market position eroded if service quality suffers as a result and fund sponsors look for greater assurance about the stability of their service provider relationships.
In Guernsey, a process of consolidation is creating bigger and more focused players in the areas of fund administration, fiduciary and legal services and global custody. Combined with a flexible regulatory regime, the island is well placed to attract a greater share of the growing alternative fund services industry.
While being part of a global financial services business brings obvious advantages in availability of resources and the operational benefits of a global network, ultimately the size of an administration firm is less important than the long-term commitment of the organisation to the business and to the people whose skills deliver the level of service that clients require.
Brenda Petsche is managing director of HSBC Securities Services (Guernsey) Limited, which is regulated in Guernsey for financial services business by the Guernsey Financial Services Commission
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