I recently heard Eben Pagan speak in LA at a marketing conference on how business is typically conducted.  I was reminded of that talk while I was in Boston last week for our Hedge Fund Premium networking event (which was great).

The streets in Boston were actually old cow paths that the city decided to just pave over to create the roads of the city.  The result, is a very complicated maze of one way streets which really only make sense to the most veteran cab drivers.  This is not the cows fault they simply walked typically in the direction of least resistance.  The point here is that nobody stepped back and looked at where the cows had wandered and asked if there was a better way to get the project done…they simply followed where cows had walked in the past.

Pagan’s point in telling this story was that in every business, every form of marketing and even within the hedge fund business there are cow paths everywhere.  Are you and your business wandering around on cow paths of what others have done in the past, or are you building a super highway straight towards your goal?

Areas to examine for fund administrators and fund managers could including hiring, capital raising, employee management, performance reporting, transparency, governance, and investor relations.  Our team now often steps back and looks at competitors, other industries, and steps to the work we are trying to complete to see if there is a more direct or efficient way of completing it.  Hope this story helps.
Tags: hedge fund cow paths, hedge fund processes, business processes of hedge fund managers, hedge fund managers and how they operate their small businesses

Definition of Fund Administration: Fund administration is name given to the set of activities that are carried out in support of the actual process of running a collective investment scheme, whether the scheme is a traditional mutual fund, a hedge fund, Pension fund, unit trust or something in between.

Managers of funds often choose to outsource some or all of these activities to external specialist companies; these companies are often known as fund administrators.

These administrative activities would include:

• Calculation of the Net Asset Value (NAV) including the calculation of the funds income and expense accruals
• Preparation of semi-annual and annual accounts
• Maintenance of the fund’s financial books and records
• Payment of the funds expenses.
• To reconcile Daily and Monthly Broker Statement
• Settlement of daily Trades, assuring that the proper dividend and interest are received, updating price of securities of client.
• Pricing of Security
• Calculation and payment of dividends and distributions (if required)
• Supervision of the orderly liquidation and dissolution of the fund (if required)

Specific activities that definitely do not fall under the name of fund administration are those directly associated with the business of running a collective investment scheme:

• Gathering assets (i.e. seeking additional investors into the fund)
• Asset management (i.e. deciding how to spend the money that investors have put into the fund in order to obtain the best return for that investment)

In the view of some fund managers any task necessary for maintenance of the fund that does not fall into one of the two categories above could be classed as fund administration and could potentially be a candidate for outsourcing.

Source

Our team just recently found an in-depth presentation by CarbonBased Consulting on the topic of fund administration.

This presentation is online within PDF format and it covers:

• Mergers and Partnerships
• Offshore hedge fund administration assets
• Technology
• Lists of fund administrators
• Control and independence factors
• Regulations and Compliance
• Human Capital Requirements
• Costs and Analysis

To view this presentation right now please click here.

An alarming survey published in August 2008 revealed that almost 30% of fund administrators in Europe would see a cut in revenue in 2008.  The respondents were slightly more optimistic for 2009, as 24% expected a further reduction in 2009.  Other worrying statistics to come from Deloitte’s survey were: 44 percent are pessimistic about the short-term outlook of the fund administration industry; but 85 percent were optimistic within a two-year timeframe. 

“The mixed outlook over the short term indicates that the fund administration industry is feeling the pressure of the wider market turbulence,” said Brian Forrester, a Financial Services Partner at Deloitte Ireland and the author of the report.  “Ireland, as a major player within the administration industry, cannot expect to be immune from this. Already we have seen reductions in staff numbers here, and the emphasis for Irish administrators must be to assess their business models and act now to increase efficiencies in order to maintain service levels for their clients whilst managing their own profit margins which are under significant pressure.”

Respondents noted the decrease in assets under administration as the most significant impact of the credit crunch.  The second most pressing concern facing the industry was cost containment.  With the fall in revenue and a high fixed cost base there is little wonder why administrators want to focus on reducing expenses.  However, administrators also signaled they hope to maintain a high quality of service despite cost-cutting measures.

A high 83% of respondents anticipated a decrease in new hires compared to past estimates.  Another noteworthy result of the survey was that many fund administrators have started focusing on outsourcing.  By moving elements of their operations either out of their home state or to specialist providers, administrators hope that they can reduce some of their costs.  The overall conclusion from this survey seems to be that fund administrators have been hit hard by the credit crunch and as things have not recovered in 2009 it is an uneasy time for the industry.

Source: Deloitte