New York/May 04, 2006/: Global fund administrators for the alternative asset management industry will continue to experience consolidation after a flurry of M&A activity in the past two years that leaves the biggest players dominating the sector, according to a new survey from buy side research firm Carbon360.
Released this week, the 2006 Fund Administrator Service Provider Fact Book is a comprehensive guide on the service offerings of 62 administrators, as well as industry breakdowns (market breakdown, growth, revenues, costs) and trends in the space. Carbon360 introduced the report in response to demand as growth and mergers in the administration sector has intensified to meet the needs of an increasingly complex and rapidly expanding alternative investment space.
The report, which was compiled by Carbon360 research analysts Ralph Lafferty and Russell Smith, profiled 22 mergers and acquisitions transactions among fund administrators -since 2001. Further M&A activity is expected as the industry contends with people and technology capacity constraints.
“Continued merger action is expected among fund administrators as many start to experience technology and personnel limitations,” said Brian Shapiro, President of Carbon360. “This will be coupled with the demand for more capacity from hedge fund managers as client-bases broaden and once silo-ed managers turn toward multi-strategies to compete with fund of funds,” he said.
Of the 62 administrators profiled, the survey found that 12 companies controlled 69.3% of the marketplace as measured by assets under administration (AUA). Those managers collectively controlled $884 billion AUA as of 2004, and which grew 30% to $1.25 trillion AUA as of 2005. AUA was measured collecting data on hedge funds, fund of funds, private equity and mutual fund client assets.
Meanwhile, some firms saw their market position slip as their AUA contracted. According to Carbon360, this was due to: slow down in fund (particularly mega) fund launches; poor performance by existing hedge fund clients; and, asset flight (i.e. mandate loss as clients move from one administrator to another).
Another major finding from the survey concerned prices, with expected renewed pressure by clients to push down fund administrator fees. “What we are seeing in the industry is a trend away from two different fee structures -- one for month-end, or NAV-lite, and one for full daily reporting – toward a single price structure,” said Mr. Shapiro, adding that fund administrators were motivated to move away from month-end only fee structures (and its inherent liability) to full daily in an attempt to preserve margins.