Reports of large banks exiting hedge fund administration and dropping large numbers of prime brokerage clients are indicative of a shakeup in the fund administration industry.
Investment banks are exiting fund administration due to regulatory and balance sheet concerns. “There’s a shift underway with some of the big investment banks moving away from the fund admin space because it doesn’t fit their banking and custody core service lines,” Scott Price, regional director and head of sales at TMF Custom House Global Fund Services, told Markets Media. “There’s also a misfit in terms of exposure. Banks are very prudent, and are very worried about that type of exposure, and that could be another reason why they are moving out of the space."
This holds implications in the near-term for fund managers, who need to embrace an independent service provider model, according to Price.
“Typically, fund admin platforms are built on top of prime brokerage systems,” he said. “Clients could be using an investment bank for prime brokerage service as well as for administration, and because of that, there could be a perception of independence issues.”
When fund managers hear that their administrator is being put up for sale or scaled back, they will go shopping for a new provider. “If the larger institutions are not showing that commitment, they’re obviously going to be going to firms that are committed to the space, and this is our core business,” said Price.
Most independent fund administrators can onboard new clients within four to six weeks, depending on the type of fund and the complexity of the fund. “Funds are shopping around, and looking for independent providers that can get them on board relatively quickly, especially if they feel that they’re going to be exited from their current provider,” Price said.
TMF has invested in its technology platform, Gateway, which allows clients to have intraday reporting capabilities for their portfolios and managed accounts. “We rolled that out about fifteen months ago, and we have had a series of enhancements to that, such as exposure reports,” said Price. “We’ve invested in our technology, and we’ve invested in our locations in terms of putting people where our clients are, always with the aim to drive new relationships into the group.”
