The hedge fund administration space will shrink significant over the next five years, an industry expert has warned.
Speaking to Global Custodian, Ian Lynch, global head of hedge fund services at BNP Paribas said the consolidation would be driven by technology costs and customer demand for a wider range of services.
He said: “It is still quite a fragmented space, you have upwards of 70 different administrators,” said Lynch. “With those numbers you will have to see some consolidation.
“I see a continuing consolidation and the space shrinking down to fewer larger players in the end. We could have 10 large players in this space.”
The industry has already seen high profile takeovers in the past couple of years. SS&C acquired Citigroup’s hedge fund admin business in August 2015, while Mitsubishi UFJ Fund Services took over Meridian Fund Services Group back in March 2014.
In June last year BNP Paribas acquired Credit Suisse’s hedge fund administration arm, and Lynch, global head of hedge fund services made the switch to the French securities services firm.
BNP Paribas was seeking to establish operations in the ‘alternatives’ segment when it took over the Credit Suisse hedge fund administration business, to complement its traditional asset management shop.
Lynch believes customers are increasingly seeking a broader range of services from their provider.
“The business has become more complicated over time, and the clients we deal with are also looking for a broader set of products from their counterparties,” he added.
“They are looking for them to service everything from traditional assets to alternative types of assets, both regulated and unregulated. You need that broad breadth of services going forward.”
Lynch said the prospect of consolidation is not “as daunting as it once was”.