Alternative Assets Grow, While Administrators Merge

The alternative fund administration industry’s global assets under administration (AUA) continued to grow at a double-digit rate in 2014, shows a survey by eVestment. Participants reported AUA of $6.862 trillion at year-end, an increase of 16.8% from in 2013.

The Alternative Fund Administrator Survey 2015 says the demand for institutional quality infrastructure and the imposition of new regulatory requirements has translated into an added emphasis on and technological advances in operational accuracy and timeliness.

Total private equity and real estate fund assets under administration grew 23.7% year-over-year for a total of USD 1.580 trillion, outpacing hedge fund AUA growth of 15.5% and fund of hedge funds AUA growth of 11.9%.

Surveyed administrators estimated more than 50% of private equity and real estate assets were administered in-house compared to almost universal adoption by hedge funds and funds of hedge funds. Respondents’ estimates put in-house administered private equity and real estate assets as a percentage of the total at 60 – 70%. However, participants expected the third party administration model to further penetrate the space citing regulatory burdens and investors’ increasing comfort.

Almost all participating firms expected further contraction in the number of fund administrators citing barriers to entry – particularly the need for a global presence and the cost increase related to regulatory services. Firms expected M&A activity to continue, with investment banks actively soliciting firms of all sizes, contributing to the decrease in administration firms.

“In the near future, there will be two classes of administrators: those that can adhere to the demands of rising regulatory reporting and those that can provide cost effective solutions to emerging managers,” says one mid-size global administrator.

Deals in 2014 include BNP Paribas’ acquisition of Credit Suisse Prime Fund Services, Circle Partners’ acquisition of Caledonian Global Fund Services, and Maples Fund Services’ acquisition of Vistra’s Hong Kong and Singapore operations. In the first quarter of 2015 Apex Fund Services announced its acquisition of Pinnacle Fund Administration and Mitsubishi UFJ Fund Services announced its acquisition of Meridian Fund Services. There were also technology related deals, most notably SS&C’s acquisition of Advent Software.

As a group, administrators were most optimistic on their growth prospects in North America and Europe. Compared to the results compiled in last year’s survey, expectations for North America, Europe, and Africa increased relative to Asia-Pacific, Latin America, and the Middle East.

“We are continuing to see larger hedge funds receive assets and grow even larger. However, at some point, investors may look to diversify and invest with emerging managers that have a proven track record, said one administrator with more than $30 billion in hedge fund AUA.

“For [emerging managers] we are seeing very high rates of adoption of the third party administrator (TPA) model driven by a number of factors including LP comfort with the TPA model, the increased regulatory burden on registered funds, and the ability to have an infrastructure that scales well with the firm. said one large private equity administrator.