HFM Week has published a detailed, new survey of hedge fund administrators (available here). The survey finds that the total assets of single strategy hedge funds under administration (so excluding fund of funds) was some $2.5 trillion as of April 2007.
- Many US hedge funds are self administered (this includes a lot of small funds as well as some of the very largest). The $2.5 trillion number hence excludes a lot of funds and must be an understatement - this survey becomes, therefore, another point of reference in the ever elusive search to confirm total industry assets.
- At the same time, not all the administrators provide full service administration - the $2.5 trillion includes a lot of share registration and NAV Light services. In these arrangements, the administrator may be doing some work, but is not maintaining independent accounting records and is not cutting an independent NAV.
Investors should always, always remember that not all administration is created equal. We continue to be disappointed by managers who appoint administrators to perform less than "full service"; it also begs the questions as to why the firms themselves (as we have noted before) remain happy to be used as window dressing.
- Not all administrators on the list are independent - several are owned (at least partly) by hedge funds. There is also the broader question of whether an administrator owned by a fund's prime broker can be considered independent, but we'll leave that thorny issue for another day.
- If we do assume that administrators now service $2.5 trillion, an average fee of 10 basis points makes the administration industry a $2.5 billion a year revenue business. With that type of fee structure, I'm sure investors would like to see administrators continue to invest in technology. Above all, investors want to see administrators make far greater investments in systems and people to enable independent pricing.
The full detail is in the HFM article, but for quick reference, the top 10 firms are now:
1) Citco - $390bn
2) HSBC - $175bn
3) Bisys - $170bn (since acquired by Citi)
4) IFS - $169bn
5) Goldman Sachs - $158bn
6) IBT - $154bn (since acquired by State Street, meaning that IFS and IBT combined administered $323bn as of April 2007, putting State Street in second place)
7) Fortis - $114bn
8) Caceis - $100bn (bought Olympia Capital)
9) GlobeOp - $100bn
10) BNY - $90bn