Just 10 fund administrators will remain in business, says top exec at SS&C GlobeOp
“There is a huge amount of consolidation going on in the hedge fund administration world and I believe there will be just 10 fund administrators operating in less than a decade, or even within a few years,” said Ron Tannenbaum, managing director at SS&C GlobeOp, speaking at Linedata Exchange 2012 in London.
There are approximately 66 fund administrators although this year has seen a series of high-profile mergers. SS&C acquired GlobeOp in May 2012 for $920 million while Goldman Sachs Administration Services was sold to State Street AIS for $550 million.
There has been speculation that Morgan Stanley Fund Services, which has $142 billion in Assets under Administration (AuA), could be next in line to sell itself, with State Street, Citco or TPG being potential buyers. Others reckon Citi Fund Services, which is part of its transaction services group, could also be sold.
Many banks are trying to streamline costs as falling revenues and regulatory requirements start to bite. Fund administration is often a cost intensive yet unprofitable arm at banks making it a likely target for any cuts.
“A lot of fund administrators are also dependent on one or two clients who form a substantial percentage of their AuA. If they lose those hedge funds, their business can suffer,” added Tannenbaum.
In 2011, BlueCrest, the $30 billion hedge fund and one of GlobeOp’s biggest clients, switched a substantial chunk of its business to HSBC Securities Services in what was a major blow to the fund administrator.
Depositary liability, as mandated under AIFMD, could also force smaller fund administrators to merge or close. Some standalone administrators do not possess banking licenses which is a prerequisite to becoming a depositary and therefore will be forced to find depositary partners. This could be a challenge given that some banks and larger administrators will be reluctant to act as depositary partners to their competitors.