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The expansion of third party hedge fund administration continues at a remarkable pace. With the hedge fund industry undergoing seismic shifts, however, administrators are faced with a formidable set of business and operational challenges.
The hedge fund administrator’s role is evolving, and the product “fund administration” is expanding. Funds are looking to their administrators for expanded valuation and reporting capabilities as well as greater middle office functionality, collateral management, risk reporting, and compliance services. In addition, administrators are gearing up their offering to grab a share of the rapidly growing market for fund of fund administration. In a new report, Trends in Hedge Fund Administration 2008, Celent offers a broad view of the trends and drivers in this space.
Continued growth of the hedge fund industry stands out as a capital driver of the hedge fund administration market. As competition heats up, the majority of hedge funds have opted to unload the burden of maintaining a back office in order to free up resources to allocate to their core activities–trading and generating alpha. Additionally, increased fund complexity and shifting sources of capital have created an incentive environment that is highly conducive to the outsourcing trend.
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The article comments on the recent trend over the last couple years that hedge funds have moved into more complex mid- and back-office operations. This trend has occurred because funds have to keep up with the increasingly complex instruments and technologies competitors are using, as well as the recent burden of new corporate regulations along with Sarbanes-Oxley. This increased complexity in hedge fund administration has led to an up tic in outsourcing fund services.
Hedge funds see this out-sourcing of mid- and back- office duties to fund administrators as a way to keep focusing on the fund’s investment strategy, leaving the hassle to fund administrators. The article then accounts CitiGroup and JP Morgan’s move toward bolstering fund administration services as a way to capitalize on the growing out-sourcing. Some investors may also be comforted by the idea of a major firm like JP Morgan or Citi servicing their fund, the article suggests.
Source: Finance Tech
FundAdministration.org is a new website aimed at educating investment funds on selecting fund administration services. This site tracks fund administration related news, jobs, trends, statistics and due diligence.
