[ M A R K E T
R E V I E W
|
M & A ]
Acquiring a business can also be a
significant boost in terms of reputation.
Northern Trust’s acquisition of Citadel’s
Omnium technology platform for $100
million in 2011 helped to double its hedge
fund assets under administration to $140
billion and allowed it to attract some
significant clients, not least of which was
Bridgewater, the world’s biggest hedge
fund, which signed up in 2013, increas-
ing the company revenues fourfold and
putting it into the top five global admin-
istrators.
The strategy for many to keep their
heads above water or grow the business
“Our strategy over 50 years has been simple one – for us,
whether you call it secret sauce or not, the two most important
things, people and technology.
“When people ask what camp we’re in, I wouldn’t say we
wouldn’t buy someone, but for us to buy someone we either have
to get better tech or a set of people we don’t currently have. The
people buying today – I don’t think that’s what they’re focused
on. Most of the time it’s just to collect assets or to drive EBITDA.
“The people buying today they are now running 10-15 differ-
ent shops. How do you handle 10-15 different technologies and
environments?”
A quick search of ‘fund administration consolidation’ on Global
Custodian returned 18 pages of stories dating back over a dec-
ade, with an Aite Group report from 2007 claiming that after five
years of large-scale acquisitions the trend would continue for
“Ultimately the traditional business fund admin model has
become outdated and uncompetitive due to an inflexibility.”
PETER HUGHES, FOUNDER AND CEO, APEX FUND SERVICES
has been to move into new forms of fund
administration, focusing on private equity
and real estate, two burgeoning asset
classes.
Reputational boost
Private equity assets under administra-
tion increased 18% to $2.5 trillion in 2017,
according to eVestment.
Andraca adds that, as alternative asset
classes and capital grow to encompass
new forms of private debt, private credit
and crypto funds, the need for outsourced
administration of these funds will grow
correspondingly.
A prime example of an administrator
benefiting from the private equity trend
has been Citco, which is now on its way to
one trillion dollars’ worth of assets under
management. The fund administrator
believes they are the one exception to
the buy or be bough theory after growing
organically to its latest milestone.
Jay Peller, head of fund services, believes
the two most important parts of the busi-
ness are people and technology and often
money improve what you already have.
54
Global Custodian
The Hedge Fund Annual 2018
years to come.
Fast-forward 11 years and similar pressures still exist, accord-
ing to Virginie O’Shea, research director at Aite Group. “The
challenge with servicing hedge funds is that they’re in the high-
risk bucket because they go out of business relatively rapidly, so
recurring and steady revenue is not a given, even if you have a
large client base,” O’Shea explains.
Mirsky suggests that one way for administrators to deal with
increasing demands and pressures is to focus on their own core
offerings and outsource more themselves.
“For large administrators it makes sense to outsource com-
ponents of theirs which are not core to their business,” he says.
“Valuations for example; we can come in and offer this. You have
to look at the costs of pulling resources away from processes like
your NAV work, along with – sometimes – thousands of calcula-
tions and some firms even adding temporary staff to do this.”
He adds EisnerAmper has noticed a significant uptick this year
in the outsourcing of year-end financial statement preparation
by the fund admin firms.
Andraca concluded that small- to mid-size fund administrators
will need to make their technological capabilities as important
as their accounting capabilities in order to succeed.
With administrators all considering M&A activity, whether it is
as the buyer or seller, it may well be that the largest players with
the biggest and best technology capabilities continue to grow
through acquisitions until there are only a handful of players
left. Where it will all end, only time will tell.