Alternative Fund Administration Survey 2011
We look at five different asset classes (private equity, Ucits, real estate, hedge funds and funds of funds) and show how securities services providers competed in the world of fund administration in 2010.
Welcome to our easy to navigate round-up of how fund administration firms performed in 2010 for hedge funds; funds of alternative funds; private equity funds; real estate funds; and Ucits compliant funds. From fund accounting to multicurrency dealing, we also round up their key services. Read the full survey here.
2010 was the year the returns generated in the financial world returned to respectability following a horrendous couple of years. In addition, it saw the asset management community become less wary about using alternative funds.
Gains in hedge funds for example averaged over 10%, although this still lagged the performance of the S&P index. Also, private equity recovered some momentum in 2010, and the decline in commercial property valuations stabilised. For example, in the UK, commercial property valuations increased 6.6% in the year.
In this year’s survey we have included a section on Ucits funds as they become more popular. BNP Paribas and Brown Brothers Harriman are blazing a trail in this area with over $750 billion of assets between them. The total number of funds rose from 324 in January 2010 to 578 by December. However, Ucits funds saw their first major casualty with BlueCrest Capital Management liquidating its $630 million fund, citing a tracking error with the fund it was mirroring.
Most firms that cover private equity saw a moderate climb upwards for assets under administration with BNY Mellon, JP Morgan, BNP Paribas, Citi and SEI making the most gains. Again acquisitions played their role here, for example with JP Morgan’s acquisition of private equity specialist Schroders in August 2010 (www.icfamagazine.com/1897191).
For funds of funds, BNY Mellon, Citi, Citco and UBS were the leaders with Northern Trust not far behind. BNY Mellon more than doubled its assets under management, again heavily supported by the acquisition of PNC. BNY Mellon paid $2.31 billion for PNC GIS, which has $850 billion of funds under administration and roughly $460 billion of custody assets.
At the time, Tim Keaney, chairman of Europe at BNY Mellon and co-chief executive of BNY Mellon Asset Servicing, told ICFA in an interview in 2010 ahead of the PNC GIS deal closure: "Germany is Europe's fourth-largest fund market… It's hard to be big in Europe without being big in Germany."
According to Hedge Fund Research, new hedge fund launches reached 935 in 2010, topping each of the prior two years and completing the best year for launches since 2007, when nearly 1,200 new hedge funds launched. The fourth quarter saw 220 new funds launched, completing a strong calendar year despite it being the second-lowest quarterly launch total in the last six quarters.
Meanwhile, State Street benefited from its acquisition of Intesa Sanpaolo securities services in Italy and Luxembourg. There were 743 hedge fund liquidations in 2010, the fewest since 2007 and nearly half the rate in 2008. The fourth quarter saw only 158 funds liquidate, the lowest total since the fourth quarter of 2007. For those administering the funds, mergers and acquisitions were significant sources of growth. The five largest names from last year all grew in the hedge fund space with SEI overtaking Citi in fourth place (see graphic).
BNY Mellon's acquisition of PNC GIS helped increased its assets under management to $267.8 billion, up 40.2%, with the number of funds it increasing over 60% to 1524. Among the smaller firms, Bermuda-based Equinoxe merged with Atlanta-based MadisonGrey in November to help increase its international reach, helping it grow by 300%.
Stephen Castree, chief executive of Equinoxe, commented: "2010 was the year when mergers and acquisitions restarted in the hedge fund administration space after a hiatus of several years, due to the lower revenue numbers, decreased margins and increased pricing pressure for new business seen by many players. This reflected the increased pressure on the underlying hedge fund industry, with new funds struggling to gain seed capital and asset gathering by even the larger players proving difficult. The increased need for institutional components and their associated cost may well see this trend continue."
One company experiencing organic growth is Apex which more than doubled its hedge fund assets in 2010. John Bohan, chief operating officer at Apex, said: "We have opened five new offices including Dubai, Hong Kong and Singapore since 2009; our funds are growing organically and we have been taking on new business including increasingly larger funds. We are also expanding our offerings to the middle office. We expect similar growth this year."
As ever, companies sought to improve their technology and key services throughout the year. From collateral management, OTC valuation, asset verification to web-based analytics tools, the evolution of the fund administration business shows no sign of halting.
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