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Game On: Hedge Fund Administration

Mega-merger mania is on in the hedge fund administration business. Adding to the frenzy is a handful of new start-ups that dare to take on the big players.

A new Impact Report from Aite Group addresses the consolidations and trends in the hedge fund administration marketplace, and examines investment operations outsourcing, the latest craze in new service offerings.

Hedge fund administrators provide independent administration and, increasingly, operational services to hedge funds. New players are appearing in the marketplace, and a number of large-scale acquisitions have occurred over the past five years, with market participants anticipating further consolidation this year.

Administrators are progressively making headway into the core operations of investment firms - particularly hedge fund firms - that wish to focus on investment returns versus operational excellence. The business is far more complex than traditional fund administration services and poses greater risk, but offers significantly higher margins.

"Administrators may well consolidate further in the next few years," says Denise Valentine, senior analyst at Aite Group and author of the report. "But the acquiring firm could be one of the independent or spin-off administrators. Many are richly resourced by interested parties. Expect a few upsets by 2010, as there is uncertainty in large firm acquisition integrations, delivery of a new core operations service, the hedge fund manager's propensity to go against the grain and, not least of all, a serious determination among hedge administrators - new and old - to succeed."