AMERICAS INVESTMENT
Collaboration in the Fund Administration Industry is Not a Weakness but an Opportunity Robert Kennedy once said that “Progress is a nice word. But change is its motivator. And change has its enemies.” While the Kennedys, or even politicians, might not be everyone’s cup of tea, they dreamed big. ‘Moonshots’ is a term that is now used to encapsulate the desire to achieve the unachievable, a reference to Jack’s famous ‘we chose to go to the moon’ speech. What does this have to do with hedge fund administration? It is not an obvious parallel. Every firm sets out to be a leader in their industry, to beat the competition, to be more successful than the next. In business, out-performing the market is the main goal, if you don’t count offering the best services to clients, which should be a given. You have to be better and, at times, accomplish this goal at the expense of the others. There is little room for sentiment. ‘Nice guys finish last’, we are told. It may be worth considering a more strategic way to achieve better outcomes for all players. Typically, when firms align, it is in the context of some form of merger or acquisition. As we recently became an independent fund administrator, we have first-hand experience of being part of this corporate activity and we have seen the advantages and pitfalls. What has remained through this experience is how the needs of the ultimate beneficiary of our
efforts, the investor and the manager, are not considered in these changes. So what does that mean? For us, it’s an opportunity to take a fresh approach to how we constitute our industry. All around us there are examples of how our world has advanced as a result of preconceived ideas that were turned upside down. What makes us think that providing support to the alternative investment community should be any different? There is a real sense of turmoil in the administration world today as the ‘return to core values’ that is under way across the financial markets creates a new service provider landscape. In many cases, service provision models that investors have chosen have been dramatically altered. This leads to concern about future stability and priority. They have to reconsider the lens through which they view this industry through because of all these changes. It is our belief that the provision of administration to hedge funds is best done via an independent administrator who is not affiliated with any other aspect of the investment process. This allows a strategic collaboration that is designed to purely deliver a quality, independent service to both the manager and investor. One of the biggest challenges all
administrators currently have is how to meet the increasing demands of clients. There has been a massive increase in regulatory requirements, advanced technical complexities and a general expansion of the expectations of the client. Of course, all of this must be delivered in a cost effective manner, as the pressure on margins in every area of the business increases. There are many ways for firms to address these demands, but maybe there is one solution that has not been considered. This is where the ‘moonshot’ comes in. If we were to design our industry’s model from the investor backwards, instead of the service provider, we might come up with a very different model. It is an interesting exercise to undertake and something that has resonance in other areas of business. Reverse engineering of our operational models is something that we are all familiar with, but done from the point of view of the client, can throw up some interesting results. I have heard a number of times recently from both managers and investors that there are features of our business that they admire and would love to avail of, but at the same time, not lose what they have with another trusted provider who offers something complimentary. What is the barrier to this?
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