The advantage to independent administrators like SS&C GlobeOp is they are as nimble as the hedge funds they serve, according to Bill Stone, chairman and chief executive of SS&C Technologies.
“When you treat people right you get treated right, and I think that’s how this acquisition has gone,” says Stone (pictured).
Back in June this year the firm acquired hedge fund administrator GlobeOp for approximately USD924m.
The combined entity now services more than 6,700 funds with a combined USD424bn in assets under administration. From the outset it was Stone’s intention to make sure the acquisition of GlobeOp was as seamless as possible: “We were two successful, proud organisations and our challenge was to make sure everyone felt wanted so we made sure we built up camaraderie among the different teams. We have high regard for Hans Hufschmid and Vernon Barback and the organisation they built.”
Although only six months down the line, when it comes to providing a scorecard assessment Stone says that most customers would probably score them a B+/A- on the back of SS&C GlobeOp’s effort to secure best-of-breed services.
“They know full well that we’re striving for A-plus. We’re attuned to the fact that the firm is now a much larger organisation. We’re making great strides and intend to continue to solidify client relationships and bring the requisite teams together to solve a range of complex issues these clients face today,” states Stone.
He notes that whereas previously both firms – individually – were going after fund groups in the USD10bn to USD25bn AUM range, the merger means that they now have the critical mass necessary to provide first-class services to organisations with USD50bn to USD100bn in assets.
For CEOs like Stone, the Holy Grail is trying to secure single mandates from the biggest and best players in the industry as they decide to shift some of their existing in-house capabilities to third party providers: “We are already doing certain support functions for a variety of leading fund groups like the Blackstones and KKRs of the world but we don’t have a single administration contract per se…yet.”
As hedge fund managers continue to embrace best practices, however, the need to partner up with credible independent fund administrators is gathering momentum; particularly in the US where managers have held out longer than their European counterparts with respect to performing in-house administration.
Says Stone: “Hedge fund managers (and their end investors) really want to see expertise in their administrator as well as depth and breadth, flexibility and their ability to solve problems.
“However, you need to apply that expertise properly to solve those problems. Whether they relate to offshore accounts, managed accounts, a new strategy that requires doing a deep dive into a derivatives book; whatever that particular fund group is looking to do, they rely on their administrator to be able to set up the operational aspects of that initiative.”
In that respect, independent administrators are at a distinct advantage compared to potentially larger, tier-one bank-owned administrators. These do, of course, have several benefits – namely the ability to offer securities lending services – but their size can actually work against them, in a couple of ways.
Firstly, a universal bank with an affiliated administration arm is less likely to provide reconciliation and valuation services to the same objective level as an independent third-party provider. There exists a potential conflict of interest between the administrator and custodian that firms like SS&C GlobeOp can avoid: and with counterparty risk so high on the agenda today, it’s not always wise for managers to have all their eggs in one basket.
“People want to know what is the system of internal controls, what’s the separation of duties and this presents a real opportunity for us to demonstrate our high-quality offering,” says Stone.
Secondly, bank-owned administrators have more regulatory shackles that act as a brake when it comes to the speed of bringing new solutions to market.
“I think we tend to be more nimble. We aren’t as process-orientated and bureaucratic as compared to highly regulated banking institutions which now face multiple layers of regulation; while we have some regulation, it’s nowhere near as pervasive.
“For example, we were able to do German transparency tax accounting for one of our big clients very quickly and some of the bank-owned competitors couldn’t do this for up to five years,” says Stone. Of course, some managers will always take comfort in partnering up with the very biggest bank-owned administrators, that will likely never change, but for the vast majority of hedge fund managers they pride themselves on being flexible and nimble “and that’s exactly what we are”, adds Stone.
On the issue of technology, whilst most hedge funds trade baskets of instruments, the complexity that administrators face is not in the actual instruments themselves but the different combinations and duration profiles used by portfolio managers to compose them.
SS&C GlobeOp has stepped up its support in this increasingly complex trading environment by rolling out GoTrade+ to all of its clients. This system provides a seamless tool for managers to keep track of all the instruments being traded in a basket, says Stone, as well as providing collateral management, valuation techniques, risk management: i.e. what are the exposure levels across each position, which trades were executed and which were not.
“There are a tremendous number of facets to GoTrade+. We believe it helps people streamline these baskets of securities and derivatives that people are trading. It has built-in controls that allow you to see things as they unfold,” says Stone, adding that thanks to GlobeOp’s heritage, the firm is also well placed to offer clients world-class middle office capabilities.
“We have world-class reporting capabilities, and I think our technology and expertise really does make a difference to our clients. We understand that position-level transparency is critical to understand how you’re doing versus your benchmarks, versus the market. It’s when you’re not meeting self-imposed criteria that you want to know you can get out of those positions in an orderly way without taking unnecessary trading risk.”
When summing up the firm’s business model, Stone says it is about ensuring that clients appreciate not just how much SS&C GlobeOp knows about credit default swaps, for example, but that they can demonstrably show their ability to handle 50,000 of them. It is not just about having expertise in the individual asset class or instrument “but also the ability to manage volume and all the risks associated with that volume. I think that’s what we’re really driving towards as we constantly invest heavily in technology and personnel,” says Stone.
“GlobeOp had world-class middle office services. SS&C had world-class back office services. Now as a firm, we have a world-class offering in both and we want to be able to link up to any front office system that any manager is running anywhere in the world. We’ve been growing at between 10 and 20 per cent and we’d like to continue driving that growth forward.”
The firm will be focusing on new areas of technology such as voice-recognition technology for clients to access data whilst in transit in the New Year.
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