There are plenty of push and pull factors influencing hedge fund administrators but whilst there are those who are getting distracted by M&A activity, one administrator that is taking advantage of the situation to win new business is Opus Fund Services, which serves over 200 fund managers and 300-plus funds with a combined AUM exceeding USD10 billion.
"We are in discussions with larger managers than perhaps we would have been a couple of years ago; largely due to the continued build-out of our institutional grade technology, service and brand," says Jorge Hendrickson (pictured), Director of Sales and Business Development.
Regulation is creating a lot of the push and pull dynamics as hedge fund managers find themselves being culled by prime brokers under Basel 3. Switching prime brokers is, in turn, leading to some managers to switch their administrator. The dynamics are constantly shifting.
"Clearly, there's been a lot of consolidation activity in the PB and hedge fund administration business recently. A few years ago, managers were able to get a lot for very little fees. As primes cut their fees, administrators did likewise," notes Hendrickson.
Regulation is now reversing that trend. Primes are raising their fees and revenue expectations from clients and suddenly administrators are taking a step back and questioning the long term viability of their own operating models.
"As clients leave their existing prime brokerage relationships, administrators have to look at who is the new custodian and PB and think: What does that do to our connectivity and workflow, our reporting systems? There's a lot of pulling and pushing going on right now.
"It's become a game of musical chairs. As clients evaluate one of their service providers, it oftentimes becomes an opportunity to re-evaluate and right size all their service providers.
"That creates an opportunity for us," says Hendrickson, who points out that by operating as an independent administrator, Opus Fund Services "can make fast decisions and take an entrepreneurial standpoint rather than having to take six to nine months to make strategic decisions and steer the oil tanker. Clients benefit directly from that: whether it's custom reporting, custom regulatory enquiries, increased delivery times, we can implement them rather than push back."
Using a fund analogy, Opus Fund Services is the equivalent of a small and nimble fund that can react quickly to the markets.
"The things that make us nimble make our clients happier and help keep their costs down," says Hendrickson.
With respect to costs, bank-owned administrators are applying the same approach as their prime brokerage partners by culling clients who are no longer economically attractive.
This is helping mid-tier administrators like Opus Fund Services consolidate their position.
"Whereas typically 75 per cent of the work we did was fund launches and 25 per cent conversions, I would say that right now that percentage is closer to 50:50.
"Some administrators have thrown spaghetti against the wall to see what sticks. We've kept our focus, offering reasonable fees and not tripping over our skis with unsuitable services. Implementing a consistent strategy and not diverting from our target client base is now reaping rewards," concludes Hendrickson
