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How will Consolidation Shape the Hedge Fund Administrator Industry in the Year Ahead? – March 2015

by Joseph McGee

  • 13 Mar 2015
  • HF

In January 2015, Citigroup announced that it would sell its hedge fund administration business, Citi Fund Services. The announcement presents opportunities for other firms within the sector, which has seen a number of high profile acquisitions in recent years. Using data from Preqin’s Hedge Fund Analyst, we examine how consolidation is shaping the current hedge fund administrator landscape and assess the likely impact it will have on the hedge fund industry in 2015.

The table above shows the leading fund administrators by the proportion of the hedge funds they service. Together, the top 10 fund administrators currently provide services to 57% of the hedge fund market; several of the largest administrators owe their market share to a combination of organic growth and M&A activity in recent years. In 2010, BNY Mellon acquired PNC Global Investment Servicing, with Northern Trust purchasing Omnium from Citadel in 2011, allowing them to consolidate their positions at fourth and seventh respectively. In 2012, SS&C Technologies acquired GlobeOp Financial Services, while International Fund Services (State Street) acquired Goldman Sachs Administration Services; these two firms are now placed second and third in the league table. Mitsubishi UFJ Fund Services bought Butterfield Fulcrum in 2013 and Meridian Fund Services in 2014, which puts them in ninth position. U.S. Bancorp acquired AIS Fund Administration and Quintillion and are now ranked eighth.

Bank-owned administrators face additional challenges as investors and regulators increasingly question the practice of cross-selling fund administration with services such as prime brokerage. Some banks have chosen to exit the business altogether; in August 2014, Credit Suisse agreed to sell their fund administration unit to BNP Paribas, a deal due to be completed in Q2 2015. Preqin data suggests that post-acquisition, BNP Paribas will move into 10th position, ahead of HedgeServ.

The effect of the sale of Citi Fund Services on the wider market, 4% of which use Citi Fund Services, remains unclear. As competitors seek to pick off profitable clients, it remains to be seen whether Citi Fund Services’ market share will be divided between multiple administrators or whether the division will be acquired by a competitor. The series of deals over recent years suggests that fund administrators are seeking to consolidate their positions, looking for economies of scale as the industry responds to increased regulatory demands and pressure from hedge fund managers to reduce costs. For some firms, where fund administration is not a core business, this could mean exiting the marketplace completely.

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