What initially sparked Peller’s fascination with hedge funds during his senior year at college was when he picked up a copy of a seminal book widely considered to be one of the most authoritative texts on investment, namely Jack Schwager’s Market Wizards, which comprises a series of interviews with some of the industry’s trading titans – including Paul Tudor Jones, founder of the eponymous Tudor Investor Corporation.
“It really interested me learning about how people like Paul Tudor Jones and other great traders made their money and the strategies which they operated,” he recalls. After graduating, Peller went on to work in the Financial Services division at EY, where he acquired a deeper understanding of futures and commodities – but also funds. Following a three-year stint at EY, he was then hired by Tudor Investment Corporation in 1993 to help support the firm’s back-office operations. “My time with Tudor ultimately led me to Citco. Tudor was a client of Citco at the time, and in 2000, the latter acquired the former’s back office technology and staff – and the rest is history,” says Peller.
During his 22 year tenure at Citco, Peller has seen some extraordinary changes in the hedge fund landscape. Among the most significant was the industry’s shift towards outsourcing middle- and back-office functions. Up until 2008, many hedge funds self-administered but the financial crisis put an end to that practice. With large institutions struggling to etch out returns in the aftermath of the crisis, many turned to hedge funds for alpha. In contrast to high net worths and family offices, pensions funds and insurers did not look kindly on managers self-administering their portfolios, especially as many allocators were still reeling from the Bernard Madoff fraud. “Institutional investors wanted hedge funds to use an administrator to oversee their books and records,” he says. As competition for client mandates grew, hedge funds had little option other than to appoint third party administrators.
There were other factors behind the post-crisis outsourcing boom too. In the 1990s and early-mid noughties, hedge funds typically provided only piecemeal transparency to clients, often nothing more than a month-end NAV [net asset value] statement or a periodic (i.e. monthly) performance report. These transparency lapses were brutally exposed in 2007/8 when countless hedge fund clients found themselves exposed to esoteric assets and markets, which were well outside of the scope of their original investment mandates. In some instances, investors were gated for long periods of time as hedge funds desperately sought to offload problem assets. The really unlucky allocators – including many funds of hedge funds – suffered catastrophic losses after being exposed to frauds such as Madoff. As investors and regulators demanded more transparency from hedge funds, managers increasingly started delegating reporting activities to fund administrators. Beyond providing reporting services, Peller says administrators have invested heavily into other middle-office tools including collateral management, treasury, and reconciliations. “Over the last few years, administrators have really become a value-add for hedge fund clients. When I first arrived at Citco back in 2000, the company was a purely month-end administrator. In the 10 years after I joined, Citco integrated all of the Tudor technology enabling it to develop middle-office solutions,” continues Peller.
Another milestone in Citco’s recent history has been its diversification into new asset classes beyond hedge funds. “Nine years ago, 99% of Citco’s AUA [assets under administration] was hedge funds,” he says. Since then, Citco has expanded into private markets supporting burgeoning and fast growing strategies such as private equity, private credit and real assets, he adds. This is in part a response to the increasing hybridisation that is presently sweeping through alternatives and traditional asset management. Asset managers of all persuasions – stung by market volatility – are now embracing private capital in their droves as they look to diversify returns and widen their investor base. It is here where fund administrators like Citco – which can support multi-asset class portfolios – have benefited.
Moving forward, Peller believes digitalisation will be something that differentiates fund administration leaders from the rest of the pack. Citco, he says, has been a pioneer in automation citing the example of CitcoConnect, a tool that simplifies and automates the management of prospective investors and the placement of initial investments in alternative funds through a secure data room. More recently, Peller says Citco migrated $1 trillion of AUA onto the newest version of AExeo, running on Amazon Web Services (AWS) in what was one of the largest accounting transitions in history, and the largest within the alternatives industry. The move means all of Citco’s hedge fund and hybrid clients now have a secure cloud service, which streamlines the administration of their portfolios. In total, Citco migrated more than 550 clients to AWS – including 10,000 accounts and 1.2 billion orders. Such digitalisation, he highlights, will be essential if fund administrators are to thrive in this competitive market environment. “It is all about improving the end customer experience,” he says.