Fund Administration Q & A

Fund Administration Q & A

What is the Future of Fund Administration?

A couple months ago I sat down with Eric Warshal of Fund Associates in Atlanta to talk about the fund administration business and the hedge fund industry. Here is one question I asked him and his response:

Question: How do you see the fund administration space evolving?  Are more competitors cropping up? Consolidation?  Where is the innovation occurring right now in the industry?

Answer:   The fund administration space is still quite a competitive market. New companies are certainly emerging on a yearly basis. This growth in firms is being driven by both the growth in the overall number of funds that seem to be starting up coupled with the expectation that more regulation may be coming down the pike that will force more self administered funds toward outsourcing. 

However, it is likely that as the new firms either become more established or fade away, there will be more consolidation within the industry overall. Innovation is currently driven by the technology platforms that the administration firms are making use of. Although there are still a number of smaller firms that still make use of Excel to derive their monthly calculations, most firms are making use of a small number of technology platforms that were specifically developed for partnership accounting / hedge fund accounting purposes. These technologies allow the administrator to directly interface with the brokers to facilitate the downloads of transactional histories and thereby ensure that the funds are able to be properly reconciled on a, typically, monthly basis. 

Innovation is occurring within these technology platforms which allow for more immediate and automated interactions with brokers. Additionally the incorporation of more sophisticated capabilities of the software allows the fund accountants to administer more dynamic and difficult funds. 

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