Trends in Fund Administration: Consolidation, Fee Alignment and Blurring Lines of Business

By Eamonn Greaves

istock_000071861381_xxxlarge

Earlier this year SS&C completed the acquisition of Citi Fund Services, a deal that highlights a couple of key trends we are seeing in the industry: a general consolidation and the decision by some large banks to exit the fund admin business.

From our perspective, we expect these trends to continue. It takes a substantial and continuous investment in technology to stay competitive and profitable in this business. Banks have understandably been reluctant to keep making that investment in an activity that is on the fringe of their core commercial business. Banks don’t want to be in the software development business either. So it makes sense for them to turn the business over to a specialist that can run it far more profitably.

SS&C happens to be the only fund administrator that is also a technology company. That means we not only develop, own and maintain the technology that supports our fund admin services, but we also license our software to other players in the business. This dual focus enables us to generate the revenue needed for continual reinvestment to keep improving our technology.

Funds Seek Greater Value

 Another trend we are seeing is the pressure brought on by general underperformance of hedge funds over the past couple of years. There’s little question that fund managers expect more from their fund admins than they did in the past. As fund firms are feeling a squeeze on profitability, administrators are feeling some pressure to make sure their fees are in alignment with their clients’ needs and expectations. This may mean taking a variable fee approach, as SS&C does, while simultaneously ensuring that we are delivering our services as efficiently and cost-effectively as possible. As we’ve refined our platform over the past 30 years, the measurable efficiencies we have been able to produce should translate into greater value for our client.

A Transforming Market

Much has been written lately about the trend toward quantitative strategies, especially on the part of larger funds. While we would expect this to drive higher trading volume, we don’t expect to feel much impact from an operations or technology point of view. We are built for scale, so a surge in volume wouldn’t affect our systems or our service.

The more marked trend we are seeing is demand from traditional asset managers as they seek to pursue alternative strategies. As the lines between these businesses become more and more blurred, asset managers are looking at how to improve their middle office processing capabilities to handle the volume and level of complexity they have not been accustomed to. For administrators that can deliver middle office expertise underpinned by a solid technology backbone, this segment of the market is likely to be a strong growth area in the near term.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s