By Ron Tannenbaum
How did SS&C GlobeOp become a world leader in hedge fund administration? Find out in this first in a four-part Q&A series, by Ron Tannenbaum, SS&C managing director of business development for Europe, Middle East, and Africa and one of the founders of GlobeOp Financial Services, about the early days of GlobeOp.
What were the origins of GlobeOp Financial Services?
GlobeOp Financial Services was founded by five entrepreneurs who spotted a niche in the market and an opportunity to service a segment of the financial services industry that showed substantial promise and reward. Four of the founders were alumni of Long Term Capital Management (LTCM), a hedge fund that had endured a high-profile restructuring. In its heyday, LTCM was an industry-leading money manager with $7 billion in Assets under Management (AuM). Supporting a fund with such complex and multi-faceted strategies and assets required a robust and cohesive infrastructure, replete with a best-of-breed middle and back office, and the expertise to back it up. The veracity of this infrastructure was severely tested with the LTCM collapse.
A typical by-product of a major credit event or insolvency is the administrative chaos that follows. At LTCM, the infrastructure proved solid. This enabled the fund’s restructuring to be undertaken in a controlled, carefully considered manner. LTCM’s processes and procedures had proven robust, while the personnel had demonstrated mettle in the face of adversity. We felt a service provider offering similar middle and back office services would resonate with the growing hedge fund industry. The concept of an outsourced middle office was new in financial services.
What abetted the success of GlobeOp Financial Services in its early days?
LTCM lost a lot of its AuM in a short period of time. One positive that stood out was the resilience of its middle and back office. During the crisis, LTCM never missed a cash payment or collateral movement. It remained entirely consistent in its valuation policies and never restated or suspended a Net Asset Value (NAV). LTCM’s annual audits remained on schedule and communications with investors were transparent and efficient. The firm had invested heavily in its middle and back office people, procedures, and technology; it built a “bulletproof” system. This is ultimately what gave us the original GlobeOp concept. We set out to create the gold standard in middle and back office systems, deploying best-of-breed people, processes, and online technology for our clients.
GlobeOp’s early success was also abetted by US law changes. The 1997 Taxpayer Relief Act allowed US hedge funds to either self-administer onshore or delegate administration to onshore alternatives. This was a game-changer as hedge funds had been required for the previous thirty years to undertake 10 administrative functions in offshore locations. GlobeOp has always been strong around OTC derivatives. We were, and still are, industry leaders in the OTC space. Being able to locate our business in major financial centers meant we had access to a larger talent pool to grow our business.
The decision to enter hedge fund administration to complement middle and back office outsourcing happened by good fortune. Our first client asked us whether we could do their administration as well. The client pointed out we already provided a fully reconciled daily profit & loss (P&L), which meant we had produced the necessary data to offer fund administration along with our core services.
To learn how GlobeOp successfully navigated the 2008 financial crisis, watch for the second part in our series, Navigating the 2008 Financial Crisis.