Smaller fund administrators struggling in pricing battle, says expert

Acquisitions are enabling larger fund administrators to offer the same pricing as independent administrators, according to one industry expert.  

By Paul Walsh

The growth of major fund administrators through a recent spate of acquisitions is making it more difficult for smaller players to compete on pricing, according to an industry expert.

Just last month, SS&C announced it was buying Wells Fargo’s fund admin business. Other big acquisitions in recent years include State Street, snapping up Goldman Sachs’s administration services unit and US Bancorp Fund Services adding Quintillion’s $18bn in hedge fund assets under administration in 2013.

“The bigger administrators, because of their acquisitions, their technology facilities and because of their low-cost service centres means they are offering the same price level as the small to medium size fund administrators,” Mark Hedderman, CEO of Custom House Global Fund Services, explained to Global Custodian.

“This means it is a tough job to explain to somebody why they should go for an independent administrator when they can get a blue-chip administrator for a comparable price.”

Analysts have highglithed that this consolidation trend is unlikely to stop among the top fund administrators. With continued pressures on them to provide top quality service to their clients, there is very good justification for administrators to keep buying other businesses over the next few years.

The trend is, in part, a reaction to the changing dynamic in the hedge fund world. Since the financial crisis, concentration among hedge funds has grown with the top 10% of funds now controlling some 90% of total assets, increasing demands on services to be big and global.

“The other problem is that the fund administrator function is seen as a necessary evil, market participants think ‘I know I have to have it so I’ll just pick one I know’ which makes it difficult for the smaller administrators to compete,” Hedderman explained.

His comments follow increased discussion on how smaller fund administrators can remain competitive.

Fund administrator Heritage told Global Custodian last month that offering a flexible and diverse service is key for smaller administrators to keep their place in the market.

Mariana Enevoldsen, director of Heritage, explained that services offered by larger fund administrators may not be necessary or suitable while Heritage’s head of operations in the UK and Ireland Gerry Warwick suggested a possible clash between large funds and large fund administrators as they may both have complex protocols.

Hedderman also suggested that regulatory bodies were taking into account difficulties faced by smaller administrators by recognising their function as a service rather than a product offering.

“Regulators are making it better for independent administrators by recognising the overall notion of what they do and how important the role is,” said Hedderman.

“Its not just about calculating the valuation of the fund, its about offering support, compliance and regulation as a service which is where we can compete against the bigger administrators.“