The fund administration business has only been around in earnest since the 2008 financial crisis and the aftermath of the Bernie Madoff scandal. In that time the popularity of alternative investments (e.g. Hedge, private equity, real estate, venture capital) has exploded, with total assets growing from $3 trillion in 2012 to around $10 trillion today, and forecasted to grow to $17 trillion in 2020. Because of this inflow of capital, the fund administration business has also grown rapidly. Depending on the source, fund administration is anywhere from a $8 billion to a $12 billion industry today.
This scale of capital has attracted a lot of competition, which has been aided by the high churn among fund administrators. No metric shows this better than the one reported by Preqin that 28% of fund administrators have been fired by their clients in the past 12 months.
Estimates in the United States alone are that there are somewhere between 300 – 500 fund administrators. While there is a long tail of small fund administrators servicing smaller funds, the real action has been in the medium to large players.
Industry consolidation has exponentially increased, with SS&C acquiring the fund administration businesses of Wells Fargo, Citibank & Conifer, Maitland buying Phoenix Fund Services, and Apex buying Pinnacle, just to name a few. In fact, from 2015 thru Q3 of 2016 there were over 9 acquisitions in this space.
This consolidation is making it harder to compete for fund administrators of all sizes, which is forcing them to look for new ways to differentiate themselves.
2.Change in the nature of services performed
Fund administrators have traditionally been thought of as providers of accounting services. However, the quality of accounting services provided by fund administrators is no longer enough to win and retain clients.
Technology has taken on new importance for fund administrators, no longer relegated to discussions in the IT department with little senior-level involvement. In fact, technology has become an integral capability for any fund administrator – a critical ingredient to enabling the fund administrator to deliver the types of services being demanded by clients and investors.
Investors of all types are placing greater emphasis on transparency in areas like Net Asset Values and Asset Under Management, and the due diligence done on general partners and the funds that they manage is more thorough and is starting earlier than ever before.