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Steady growth in fund subscriptions

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In many respects 2014 was a year of consolidation and possibly a sign of better things to come in the BVI in the view of Mara Spencer (pictured), Managing Director of ACE Fund Services. It was, she says, a period of stability during which certain strategy funds, in particular those with an FX slant, performed well.

“The portfolios we administer are quite varied. We work with funds that have different asset allocations and operate in a range of different jurisdictions so we see quite a diverse picture of fund activity. We saw a steady level of fund subscriptions for specific portfolios that we deal with, and, importantly, a low level of redemption activity,” says Spencer.

The last point, on fund redemptions, is an interesting one. Admittedly, it’s the view of one administrator only, but it highlights the changing way in which investors, particularly institutions, view alternative investments. 

“They have more patience and understand the market is going to be volatile so they are definitely taking a pragmatic long-term view on their hedge fund allocations. There are times when investors look solely at performance but there are other factors beyond that that need to be considered, such as the background of the manager, the fund’s service providers, and the level of transparency. They expect managers to be open and communicate with them on what’s going on in the fund. Investors are becoming more sophisticated,” says Spencer.

One area of growth that Spencer welcomes is that of the Approved Manager regime, which has seen some 49 managers get licensed by the FSC through September 2014. 

“As an administrator who deals with fund formation and liaises with legal groups, that has been a positive development, especially now that the regime has been expanded to managers running non-BVI funds,” notes Spencer. 

At a time when some of the larger bank-owned fund administration groups are debating whether to continue in the market, it is perhaps more important than ever for independent administrators to play to their core strengths. That means catering to small to medium size and emerging managers who need a reliable partner. 

“We’ve made a point over the years of working closely with start-up managers and coming up with ways to better support and help them grow and maintain costs. For us, it has been paramount to build close relationships, which has led to business referrals. New managers want to know that their administrator can help with the whole process of operating a fund. We are always looking for new ways to help improve the way clients run their funds, particularly in respect to middle- and back-office services,” explains Spencer.

Under Basel III, there’s a feeling that larger administrators will begin to more aggressively cull managers and focus only on the top percentile of revenue-generating clients. This is the cold reality of regulation in 2015, but it could work to the advantage of firms like ACE Fund Services, particularly now that the Approved Manager regime is bedding in.

“Our outlook for 2015 is positive. The US economy is getting stronger all the time and growth in fund formation will follow. The confidence of shareholders in hedge funds has slowly improved, notwithstanding relatively moderate fund performance last year. “It’s been pretty stable over the last couple of years but I think in 2015 we will see an uptick in fund formation numbers” concludes Spencer. 

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