A Glimpse of Fund Administration Service Industry

The fund administration service industry has only been around in earnest since the 2008 financial crisis and the aftermath of the Bernie Madoff scandal. The financial catastrophe has led managers and other market participants begin to carefully plan and monitor their counterparty exposures. At that time, the alternative investment industry (e.g. hedge funds, private equity, real assets, funds of funds, and liquid alternatives) has continued to evolve, with total assets growing from $3 trillion in 2012 to around $10 trillion in 2017. Because of this inflow of capital, the fund administration service has also grown rapidly. Depending on the source, fund administration is anywhere from a $8 billion to a $12 billion industry today.

In general, business growth in fund administration service will continue worldwide.  For example, the start-up market for hedge funds and private equity funds will continue to be strong in the US. Despite the uncertainty around a Trump presidency, the potential for large capital spending and individual tax breaks will make the landscape positive for hedge funds in the country. But for Europe, the growing cost of regulation and continued pressure on fees have led to the closure of smaller firms in the past year, which will lead to the decline in fund administration business in the region.

However, it seems that hedge funds will no longer be the greatest revenue growth for fund administrators. Private equity assets have risen from $30 billion to $4 trillion in the past two decades. Along with increasing regulatory pressures and technological demands, private equity firms are turning to fund administrators to provide independent administration services. By 2018, it is estimated that the penetration of Assets Under Management (AUM) by fund administrators of private equity and reals estate funds will increase from 30% today to 45%.

According to FIS Report Findings, almost 9/10 of fund administrators have indicated that they were expecting to make investments in new systems and technologies before 2020. Big data and analytics will be the greatest trend for investment as the majority of participants (74%) have indicated so.

In sum, although the core themes and issues facing the industry remain intact, firms appear to have shifted gears. The rise seen globally in private equity and real asset funds has been a new opportunity for the fund administration service industry – one does not look likely to abate in the near future.