The sun is out in the Northern Hemisphere, and that means only one thing…it’s fund services time at Global Custodian! Okay, perhaps that’s not the first thing that comes to mind for most people when summer arrives, but for us the two are synonymous.
From surveys to features, our fund services season officially kicks off on 1 July and culminates in an awards ceremony on 17 November in New York. During this time, we’ll publish the results of our Prime Brokerage and Fund Administration surveys, alongside our dedicated magazine towards the end of August. As for what will be included in the issue, the list is as exciting as it is long and varied.
Let’s start with Prime Brokerage. A rollercoaster 12 months has left a shifted landscape following the Archegos saga, the withdrawal of Credit Suisse, the ascension of new players and a power play from some mid tiers. Regulators have an eye on the space, but revenues at some of the largest investment banks remain propped up by this fast-paced, evolving segment.
Next up, private markets, a sector which refuses to find its ceiling. Private funds are said to be looking after more than $18 trillion in client money – unsurprisingly, a record number. We may hear it every year, but the trend of continued outsourcing to third party providers is still accelerating. Alongside the ongoing growth and pressure from investors we’ve seen in recent years, in 2022 more factors such as ESG, a talent dearth and technology needs are forcing the issue of outsourcing.
It’s not all tailwinds for private equity funds however, as US regulators – one in particular – appear that have them in its scopes. Under the new proposals, private funds – managing at least $150 million in assets – will be forced to provide clients with quarterly reports containing in-depth information about performance, fees and expenses. In short, fees and expenses paid by the private fund must be clearly itemised, while the disclosures should reference any compensation paid to the general partners by portfolio companies. Details relating to the fund’s internal rate of return and investment multiple each quarter.
We have previously used the term ‘relentless pursuit’ to describe the SEC’s targeting of funds, however Jack Inglis, CEO, AIMA used a much better phrase when he labelled it as a “unrelenting slew” of proposed new rules. He noted in a written opinion piece last week: “Now, we have proposals to amend the definition of securities dealer and government securities dealer, which would trap many hedge funds and private fund advisers to have to register as such, if they are captured by a set of standards which deem them to be routinely providing liquidity in the markets.
“The financial cost of doing so would be extraordinary. For example, and based on the SEC’s conservative estimate, even the smallest firms required to register would face initial costs exceeding $1 million and hundreds of thousands of dollars per annum in compliance costs. Initial costs for larger managers could reach $10 million, with annual compliance costs close to $6 million. Such significant costs will necessarily have negative effects on market efficiency and liquidity.”
Overall, fund services appears to be a lucrative business for all involved at the moment, making coverage around this sector hotter than ever! Revenues related to this area rose by 7% to $11 billion among the top dozen custodians during 2021, offsetting another year of flat custody income in what continues to be a low margin business. In addition, some of the top tier independent administrators are soaring right now, through both organic and M&A-related growth. The likes of SS&C, Apex Group, Citco and Alter Domus are among those in a new and exclusive club of trillion dollar-plus administrators who are making waves in the space, to the point where some major banks have at least half an eye on their moves.
The landscape of fund services is fascinating and evolving like never before. Sprinkled into our coverage will also be a dash of crypto, ESG, regulation, domicile updates, data, technology and more.
Do get in touch if you’re interested in contributing to our fund services annual, surveys or attending our events – with the only caveat being that you bring as much enthusiasm to the table as we have when covering this space.