Citco Fund Services tops hedge fund administration rankings

Citco Fund Services claims the top spot in rankings of administrators for both single managers and fund of hedge funds but other large service providers are trumped by a pair of boutiques.

Big or boutique? For many hedge funds that seems to be the question when it comes to selecting an administrator.

The results of the service provider rankings revealed a split in preferences across big and boutique administrators.

Citco Fund Services was ranked as the top administrator by hedge funds and fund of hedge funds (FoHFs), receiving 25.4% and 28% of the total votes cast in each of these categories respectively.

This is hardly surprising. Citco is the largest provider of administration services to hedge funds. With more than $600 billion in assets under administration (AUA), the company oversees portfolio valuation and net asset value (NAV) calculations for roughly a quarter of all assets invested in hedge funds.

Citco’s immense scale is a major competitive advantage. With more than 5,000 staff in over 44 countries, its fund administration group is able to ‘follow the sun’ with employees in different time zones reconciling data and crunching numbers on a continuous basis, which in turn means hedge fund clients have access to verified portfolio information on a daily basis.

“The fund administration business has evolved from a retrospective, month-end service into a daily process,” says William Keunen, global director of Citco Fund Services. “We have made significant investments in technology and process efficiency to make that possible.”

Whereas only a few years ago the majority of administrators were expected to deliver monthly or quarterly reports, the majority of Citco’s clients now receive reconciled positions and profit and loss (P&L) reports on a daily basis. Some funds have their NAVs on the following trading day.

For Keunen, the real benefit of Citco’s model is that it means the company can offer a wider array of services beyond traditional fund administration. “We’re generating accurate, timely data that can be used for lots of different purposes,” he says. “We are supplying reconciled data to portfolio managers in the front office as well as to investors and regulators in various formats.”

This is evident in a number of initiatives that came to fruition earlier this year. Citco was part of the working group that developed the open protocol enabling risk aggregation (Opera) standard on collecting, collating and conveying hedge fund risk information and was one of the first administrators to produce Opera protocol reports for hedge fund clients.

Citco has also been active in developing a solution around Form PF, which requires US hedge funds to report a dizzying array of information on the funds they advise to the Securities and Exchange Commission (SEC). It produced Form PF reports for 12 large hedge funds with more than $5 billion in assets, which had to make their first quarterly filings at the end of August. Keunen says the company will compile Form PF reports for an additional 35 hedge funds that will make their initial filings at the end of December.

While Citco led the way in the voting, perhaps more notable is the ranking of Apex Fund Services and Meridian Fund Services, which beat a number of far larger and better known administrators to claim the number two and three spots in both the hedge fund and FoHF administration categories.

Apex, with AUA of around $23 billion, is about 30 times smaller than Citco. Yet with 300 employees in 28 offices across 20 countries, it has a global presence and business model that belies its size. “We have more people doing real accounting work in more places than any other administrator,” says Peter Hughes, Apex’s group managing director.

Having opened offices in Miami and San Francisco earlier this year, Apex plans to establish a Latin American base in Uruguay in December. “Our model is to be as close to clients as possible,” Hughes explains. “It is the opposite of the big administrators that have a commoditised model based around low-cost operations centres. That may be good for their P&L but it is not good for delivering fast, efficient and personal service to clients.”

The company’s model of “global reach, local service” is underpinned by a sophisticated cloud-based technology platform, which means it can operate seamlessly across borders. It also allows Apex to offer some impressive functionality to clients. In February, it launched Apex Funds 247, an online reporting tool that allows fund managers and investors to create customised reports quickly with verified portfolio data.

This is the first step in a wider initiative to increase transparency and access to investment portfolios, according to Hughes. “We are moving towards providing real-time risk and P&L to the iPhones and iPads of managers and investors. We could even offer risk, portfolio and order management systems through mobile technologies, so people can manage their investments on the move in real time.”

By the end of the year, Apex will make a cloud-based portfolio and order management system available to clients. “We’re not just an administrator. We are a total solution provider with a full suite of services to asset managers globally and we can deliver everything locally on a global scale,” says Hughes.

Third-ranked Meridian, with five offices in North America, does not have the global reach of Apex but it places a similar emphasis on providing a high level of client service. “We aim to be as flexible as possible and pay attention to the needs of clients,” says Tom Davis, chief executive of Meridian, which administers around $13.5 billion for 85 hedge fund clients.

The company prides itself on being responsive to clients and works with them to produce reports for portfolio managers and investors. “We can augment standard reports with additional metrics and breakdowns or produce completely customised reports on a monthly, weekly or daily basis,” says Davis.

This is possible in part because Meridian uses the PFS Paxus fund administration system, which Davis believes is more flexible than the Advent Geneva accounting platform preferred by many administrators.

“Geneva has a lot of bells and whistles. The problem is, the more functionality you have within a system, the more confined you are by it. It’s more difficult to produce an output that is unique to a client’s needs.”

PFS Paxus provides  Meridian’s team of programmers plenty of room to be creative and devise solutions for clients, Davis says.

The results of the rankings show that while size has its benefits in the administration business, hedge funds place a premium on service providers that deliver flexible solutions with high levels of client service.

Among the largest administrators, Citco appears to have found the right balance between scale and flexible services.

“The defining characteristic of the hedge fund industry is that it is not commoditised. That means administrators can’t have a ‘one size fits all’ model,” says Keunen.

“You have to work with clients to find the best solutions for them and understand that some hedge funds will want different services and deadlines. You have to organise the business in a way that maximises efficiencies and economics but that can’t be the overriding factor.”

 

Fund administrator (single managers)
1 Citco Fund Services (25.4%)
2 Apex Fund Services (14.8%)
3 Meridian Fund Services (11.9%)
4 JP Fund Administration (9.6%)
5 SS&C GlobeOp (7.8%)

Fund administrator (FoHFs)
1 Citco Fund Services (28.0%)
2 Apex Fund Services (15.6%)
3 Meridian Fund Services (11.9%)
4 SS&C GlobeOp (11.6%)
5 JP Fund Administration (6.8%)