Derek Adler (pictured), a founder member and director of International Financial Administration Group Ltd (ifina), responds to a recent Hedgeweek article about a new SuMi TRUST whitepaper…
Having worked in the City of London from the mid 1970s until the late 1990s as an asset manager and for the last 18 years as a fund administrator, I found myself agreeing with much of what was written in the article – Firm says prime brokers and fund administrators pose greatest challenge to hedge fund businesses. However there are some points that must be expanded upon and clarified and therefore I decided to write this brief response.
I do not believe that either the prime broker or fund administrator poses the biggest threat unless of course they are one in the same. I have advocated for several years that one of the most important elements to a secure fund is the appointment of an independent administrator.
This in my opinion poses the greatest threat and the new EU rule that states that the manager is ultimately responsible for the valuation is reckless and hopefully will be changed. Investors should be wary of investing in funds administered by the same ‘family’ as the manager, prime broker and banker. Therefore selecting wisely should not be a cause for concern.
I also agree that investors are no longer impressed with a household name provider which is why I took the decision 18 years ago to establish a fund administration company, simply because the service I was receiving was rather poor, and was the case particularly for smaller funds. Selecting a good administrator is not just about name or balance sheet; it is primarily about service and security.
Managers should be investigating these factors and ought to be high on their check list. Not only do we appoint a member of staff to be a point of contact during the set up stage but also an administrator is appointed to liaise with the manager at all times. Directors are also always available should a problem occur. Not only do we have a financial audit but we also have our controls and procedures audited annually, so that the manager and investors can be assured of quality, consistency and continuity.
Another key element for any fund and its investors is transparency. Investors have two major concerns besides the obvious being performance and that is security of the investment and transparency. Therefore, where the investor’s money is held is key but also daily indicative NAVs become essential in today’s volatile market conditions. This is also useful as a marketing tool for either investors considering investing or for those already invested.
Software is clearly extremely important but utilising outside licensed platforms can have restrictions and cost factors. Today’s administrator needs to be flexible in order to accommodate and tailor the needs to meet each manager’s requirements which can differ. Our preference is to use our proven proprietary software.
Lastly, one of the most important issues facing managers and ultimately investors today is accessing a fund managed by talented emerging managers. Fewer and fewer firms will take on start-ups under USD50 million, which is an enormous shame as it restricts the ability of the superstar of tomorrow ever getting started. This was not the case ten to 20 years ago but since 2008 this has very much become the norm. Not only does this and all the new rules and regulations deter talent but also diminishes the choices for investors. We have since inception championed the start-up and besides project managing stand alones for larger funds, we have created umbrella structures in Caymans and now Malta for those needing the EU passport for smaller funds.
Apart from all the points raised above being just as important for the large and established manager, there is now a solution for the emerging manager with under USD10 million providing all the same safeguards and attributes as an established fund with hundreds of millions. The same rules apply regardless of size which, makes for a fair playing field.
