New York (HedgeCo.net) \u2013 With a post-Madoff world fixed firmly in the rear-view mirror and new regulations on the horizon, a new report from TABB Group describes how the role of fund administrators is now among one of the most important of hedge fund counterparties, perhaps second in importance only to prime brokers.<\/p>\n
What investors want today, says TABB in a new research report, is more transparency and greater asset safety, which requires improvements in infrastructure for middle- and back-office operations, enhanced reporting to stakeholders and independent verification of portfolio values. This shift in investors\u2019 priorities is significantly altering the role and responsibilities of fund administrators and, by extension, the processes by which administrators are selected.<\/p>\n
According to Paul Rowady, senior analyst, and Adam Sussman, director of research, who co-authored the report, \u201c(Hedge) Fund Administration: The Selection Criteria for a New Market Reality,\u201d administration is no longer centered simply on back-office functions dealing with accounting, valuation and share registration. \u201cFund administration can now be defined as everything after the trade.\u201d<\/p>\n
Facing high switching costs, fund managers tell TABB they are keenly aware of how important it is to make the correct administration selection. With managers in Europe as well as the US becoming more sensitive to investor\u2019s increasing demands, TABB Group estimates that from 2009 to 2010 the frequency of daily NAV (net asset value) calculations will increase to 56% of hedge funds, up from 46% in 2009. Operational integrity, says Sussman, is crucial to a fund\u2019s survival, especially when faced with this increase demand in fund performance. \u201cHedge funds are seeking the best possible resources, including people, processes and technology, so they can meet and exceed the demands of the industry\u2019s changing landscape.\u201d<\/p>\n
Prior to 2008, the fund-administrator selection process was straightforward and largely handled by managers, a check-the-box type of exercise that revolved around fund administrators\u2019 brands and fees. The problem with relying too heavily on brand awareness, says Rowady, is that a brand\u2019s quality was often correlated with size. \u201cBut size and brand do not ensure that an administrator deploys the most reliable technology, SAS Level II certified processes, domain expertise and scalability, not only in terms of size but the funds ability to adapt its operation to changing technology, regulations and market conditions.\u201d<\/p>\n
TABB details three administrator models in the report: custodian-owned, broker-owned and independent\/hybrid independent. Although the independent model strives to minimize conflicts of interest that could influence the administrator\u2019s asset valuation and verification practices, \u201cThe hybrid independent model enjoys arm\u2019s-length operating independence combined with the financial backing of a larger entity and this may represent the best model,\u201d says Rowady.<\/p>\n
As firms move to validate their processing and servicing partners, TABB Group believes that the traditional method of choosing administrators by brand or reputation will be replaced by a selection process that prioritizes due diligence. \u201cThis shift should benefit boutique administrators more than many of the traditional providers,\u201d maintains Rowady.<\/p>\n
The authors believe the industry is seeing an end to the era in which funds manage their processing internally with a \u201ctrust me\u201d nod to their investors. \u201cWe see more investors pushing hedge funds to migrate their processing and valuation responsibilities to qualified third parties, firms that will need to expand their processing capabilities to be more on demand, more responsive and more global.\u201d Selecting an administrator is a complex and resource-intensive process, says Sussman. \u201cThe good news is, there are clues that investors and managers can use to make well-informed selections based on their needs and the ability of an administrator, regardless of size, to meet those needs.\u201d<\/p>\n
The 21-page report with 6 exhibits covers the changing market landscape for both alternative and traditional fund managers, how this new market reality serves as a driver for the broadening spectrum of administrator service offerings, enhances the importance of fund administrators \u2013 and the outlook for the fund administration business \u2013 and details how fund administrators are now instrumental to the long-term success of funds. The report describes the strengths and weaknesses of the three primary business models of fund administrators, including a discussion of the optimal model. The report also covers the fund administration landscape, pinpointing as many as many as 70 administrators globally, and details a comprehensive list of selection criteria with focus on the two factors that have replaced brand and size as the most important selection drivers.<\/p>\n
by TABB Group Equity Research Alliance clients and all pre-qualified media at https:\/\/www.tabbgroup.com\/Login.aspx<\/span><\/a><\/span><\/span>. For an executive summary or to purchase the report, visit http:\/\/www.tabbgroup.com<\/span><\/a> or write to info@tabbgroup.com<\/span><\/a>.<\/span><\/span><\/p>\n Other recent TABB Group hedge fund research includes \u201cPrime Brokerage 2009: The Hedge Fund Perspective,\u201d which provides the capital markets industry with an in-depth analysis of hedge fund\/prime brokerage relationships, and \u201cUS Hedge fund 2009: Fees, Redemptions and Managed Accounts,\u201d covering hedge funds\u2019 challenges dealing with fees, redemption policies, including lockups, advanced notification and frequency of redemptions, plus managed accounts, gate provisions and fund launches.<\/p>\n TABB Group is the financial markets industry\u2019s only research and strategic advisory firm focused exclusively on capital markets, with offices in New York and London.<\/p>\n","protected":false},"excerpt":{"rendered":" New York (HedgeCo.net) \u2013 With a post-Madoff world fixed firmly in the rear-view mirror and new regulations on the horizon, a new report from TABB Group describes how the role of fund administrators is now among one of the most […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[919],"tags":[],"class_list":["post-12969","post","type-post","status-publish","format-standard","hentry","category-hedge-fund-research"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/12969","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=12969"}],"version-history":[{"count":3,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/12969\/revisions"}],"predecessor-version":[{"id":12972,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/12969\/revisions\/12972"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=12969"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=12969"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=12969"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}