By Canover Watson, managing director, Admiral Administration – Worldwide, the hedge fund administration industry continues to go through an accelerating phase of consolidation. This is driven by the increasing sophistication of administration, with significant concomitant investment required to install and manage world-class technology platforms that enable administrators to meet these challenges and which offer economies of scale. While the systems have increased in complexity and cost, the skills required to provide these services have also increased dramatically, and the exponential increase in the use of OTC derivatives and illiquid assets has increased the complexity of middle and back office processes.
These developments have been accompanied by escalating investor requirements in terms of transparency and reporting. Furthermore, they are taking place against a rapidly evolving regulatory environment. These factors have served to raise the bar in terms of the critical mass and expertise required by administrators to enable them to respond appropriately.
In this context, there was further consolidation within the hedge fund industry in the second half of 2012. Among recent developments was the Maitland group’s acquisition of Admiral Administration in October. Admiral will retain its name, but now operates as part of the Maitland group with USD145billion of assets under administration, which is expected to create a powerful new global force in fund administration. The combined group now has 15 offices across 13 countries.
The trend to consolidation not only offers opportunity for growth. The efficiencies of combined businesses generate capacity, reduce cost and expand the service offering across multiple locations and time zones. In the case of Admiral and Maitland, several of the routine back office functions such as cash and portfolio reconciliations will be moved to lower cost jurisdictions such as South Africa and Mauritius in which Maitland has a presence. Client facing functions will be moved closer to the clients in jurisdictions where Admiral has a presence such as Ireland, Cayman Islands and the US.
The synergies are powerful. Admiral brings specialist hedge fund administration services and technology to Maitland’s comprehensive service offering which includes mutual fund, pension fund and ETF administration, legal advisory services, trust and corporate services and wealth management. The combination of best of breed technology such as SunGard’s InvestOne and Investran, Advent’s Geneva and Partner and Paladyne’s suite of products, allow for maximum automation across virtually all asset classes including hedge funds, mutual funds, and private equity as well as customised solutions for client and investor reporting.
Admiral was recently recognised as a finalist for ‘Best Administrator – Technology Provider’, in competition with much larger administrators known for their technology (such as SS&C GlobeOp, Morgan Stanley, State Street and Citco). With Maitland, Admiral now has the institutional infrastructure to match the largest administrators in the industry.
Neither investor transparency nor regulatory requirements appear to be receding any time soon. As a result, the demands on administrators to provide outsourced solutions will continue to increase. The smaller administrators that cannot absorb these additional infrastructure costs will be forced to consolidate with either those that already have such solutions or with other boutique administrators to create the scale to meet the increasing demands. The landscape has certainly changed and the investor is the beneficiary.