[ M A R K E T
R E V I E W
|
M & A ]
A
fter years of consolidation within
the hedge fund administration
industry, providers are now ac-
cepting the stark reality that they need a
strategy to either acquire or be acquired.
M&A activity in the fund admin space is
accelerating with each passing year. From
27 hedge fund administrator acquisitions
between 2006 and 2015, there were then
nine between January 2015 and March
2016, and subsequently 13 from the same
period in 2016 to 2017.
According to data compiled by eVest-
ment, there have been 16 transactions
from January 2017 through March 2018.
“Very fund few fund administrators
don’t have a strategy in place to acquire or
be acquired,” says Robert Mirsky, partner,
head of asset management at accounting
and advisory firm EisnerAmper.
In its 2018 survey, eVestment found that
“Consolidation among
fund administrators
has been intense over
the past few years,
driven mostly by
increasing pressure to
deliver on investors’
growing demand for
transparency.”
CHRIS ANDRACA, HEAD OF
OPERATIONS, BASEVENTURE
74% of respondents are expecting further
consolidation in the “near term”, up more
than 50% from the previous year.
Both independent and bank-owned
administrators are facing their own pres-
sures. For the banks, the administration
business may not be bringing in the kind
of earnings they are looking for – particu-
larly following the introduction of Basel
III and Dodd-Frank, while independents
are having to compete with technology
giants and the scale of banks.
Meanwhile both are dealing with in-
creasing demands from clients for lower
52
Global Custodian
The Hedge Fund Annual 2018
costs in response to their own pressures on performance and
fees. They are also asking for more from their providers as they
refocus their energies on core competencies, letting administra-
tors manage the back-office and – now much more commonly –
middle-office, with more need for data capabilities and manage-
ment on top. Add into the mix increasing requirements around
reconciliation, collateral optimisation, reporting and daily NAVs,
along with full custody, treasury management, trade execution
and FX, and it’s fair to say administrators are being asked to do
more for less.
Transparency and tech
This demand for outsourcing more post-trade functions and
focusing on their core functions is a trend occurring throughout
all sizes of hedge funds. Many are also requiring more front-of-
fice oriented products and services as back-office fund adminis-
tration risks becoming more of a commodity where there is little
room for differentiation.
These demands are forcing administrators to enhance their
offerings by building more tools, or if need be, buying them
through acquisitions.
“Industry consolidation among fund administrators has been
intense over the past few years, driven mostly by increasing
pressure to deliver on investors’ growing demand for transpar-
ency, as well as technology needs to improve operational and
regulatory efficiency,” says Chris Andraca, head of operations at
BaseVenture.
Many of the demands require technological innovation and
constant upgrades. In Global Custodian’s 2017 Hedge Fund Ad-
ministration Survey, improvements to technology services were
the most frequent requests from respondents.
The technological capabilities of some of the biggest players
through acquisitions means they are able to offer solutions that
reduce costs, forcing more pressure on smaller, independent
providers.
“The best of the upstart fund administrators are aggressively
tackling these challenges and growing quickly because of their
efforts, while the largest fund administrators are realising that
they are better off buying what they need to better compete,”
adds Andraca. “Just like what has happened with many FinTech
companies, fund administrators seem to be more aware that they
need a ‘buy or be bought’ strategy.”
The Apex predator
At the forefront of these acquisitions in recent years has been
SS&C which has already snapped up the North