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Market turbulence fails to halt GlobeOp asset growth

GlobeOp Financial Services, an independent provider of outsourced back middle and back-office administration, financial technology services and analytics to the hedge fund industry that listed on the London Stock Exchange in July, saw its adjusted operating profit rise by 31 per cent year on year in the first six months of 2007, although exceptional items resulted in a half-year operating loss of USD7.3m.

The firm, which has its legal headquarters in Luxembourg and operational facilities in London, New York and Mumbai, India, saw assets under administration, mostly in single-strategy hedge funds, rise from USD69bn at the end of June 2006 and USD77bn at year-end to USD85bn, including USD3.2bn in assets from new clients and USD4.8bn in new subscriptions and growth from performance in existing client funds.

According to chief executive Hans Hufschmid, the firm's overall revenue grew by 22 per cent to USD77.8m and its revenues from middle and back office administration rose by 23 per cent, matching the 23 per cent year-on-year growth in assets. GlobeOp's headcount rose by 19 per cent over the same period and by just 4 per cent in the first half of this year, boosting both assets per employee and operating profit, since personnel costs account for two-thirds of total overheads.

GlobeOp employs just over 1,000 people in India out of a total of nearly 1,600, but Hufschmid says the strategy is far from a simple recourse to cheap labour, with almost all of its employees there having a bachelor's degree and around half a second degree. The decision to launch operations in India was taken in response to the stresses placed on the company by rapid expansion in 2003 and 2004, which also left a legacy of disputes with clients that are now in the course of being resolved.

Hufschmid says GlobeOp has already attracted some USD5bn in new business in the third quarter, but he acknowledges that the firm's rate of asset growth may be harder to sustain over the remainder of this year. 'Whereas start-up hedge funds were a traditional source of asset growth up to last year, the number of new hedge funds was down in the first half of 2007,' he says. By contrast, GlobeOp won more new business from other administrators.

The funds administered by GlobeOp have enjoyed continuous aggregate net inflows since the hiccup experienced by the industry in the spring of 2005, and Hufschmid says the trend has remained positive in August and September this year. The outlook is not as bright for October with significant redemptions already making their way through the system, although it's not yet clear to what extent this will be compensated by inflows of new money.

While the recent market turbulence that resulted in average losses of more than 1 per cent across the hedge fund industry last month may put a brake on GlobeOp's growth in terms of assets under administration, as a result of redemptions and potential fund closures, Hufschmid argues that it is also likely to prompted greater demand for fund performance reporting and risk analysis, two areas in which the firm has a stronger offering than many of its rivals.

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