The dwindling number of hedge fund administrators and the rising costs of technology will lead to more hedge fund consolidation in 2016, according to Sumi Trust’s Global Asset Services.
Charles Bathurst, consultant to the board at SumiTrust exaplained to Global Custodian how the hedge fund structure will change and the effect on smaller funds.
“The whole infrastructure that supports hedge funds is changing, there are now fewer fund administrators and this looks set to continue,” said Bathurst.
“Smaller funds may struggle because it’s become a race to the technology frontiers which are very expensive and they may not be able to keep up.”
According to a report published in June 2015 by PwC, there were 27 hedge fund administrator acquisitions between 2006 and 2015 with 11 running $20 billion or more in assets under administration.
Bathurst believes that a number of key factors have contributed to acquisitions and believes that this will continue going forward.
“At the hedge fund level we have seen a lot close through deciding that they no longer want to manage third party money and start focusing on their own proceeds,” he added.
“We also saw a number of funds close because some markets don’t offer any opportunity to make money as there is no spread or volatility.”
Despite such changes in the market Bathurst believes that certain strategies for hedge funds can be successful.
“The strategies that seem to be more robust and have kept going since 2008 are those at a macro level such as multi asset and multi strategy traders as they have consistently outperformed.”
“Diversified funds that have taken a global view rather than just looking at European large cap equities or American small cap have done particularly well.”
More hedge fund consolidation on the horizon, says expert
The dwindling number of hedge fund administrators and the rising costs of technology will lead to more hedge fund consolidation in 2016, according to Sumi Trust’s Global Asset Services.