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Christine Waldron, U.S. Bancorp Fund Services

Cultural fit is key to long‑term success

The pace of consolidation within the hedge fund administration space shows no let-up, with MUFJ Investor Services, the asset servicing arm of Mitsubishi UFJ Financial Group, having just announced its latest acquisition; Rydex Fund Services, a 1940-Act fund administration business formerly owned by Guggenheim Investments. 

One of the reasons fuelling this trend is that hedge fund managers and their end investors are looking for a flight to quality, as well as security (from a size and scale perspective). 

"They want administrators with a diverse book that can support a wide range of funds and support them as they continue to grow and evolve with a wide array of product offerings," comments Christine Waldron (pictured), global head of the Alternative Investment Solutions team at U.S. Bancorp Fund Services. 

"We expect to continue to see that consolidation trend. That said, we are also observing new entrants to the fund administration space who are focusing on niche areas of the market. These launches tend to be with some scale already in place. Gone are the days of seeing new start-up fund administrators that do not have substantial backing." 

Another factor driving M&A activity, as observed by MUFJ's acquisition of Rydex and Australia-based MainstreamBPO's acquisition of New York-based Fundadministration, is the desire to extend the reach of administrators' product capabilities. Both acquisitions broaden the AuA in registered fund assets and, in MainstreamBPO's case, extends its footprint into North America.

Back in 2013, U.S. Bancorp Fund Services acquired Dublin-based Quintillion, Ltd to extend its own footprint into Europe. Indeed, over the years it has done a number of acquisitions in both the registered and unregistered space, with a strong cultural fit underlying each acquisition. 

Waldron says that this cultural fit is an important consideration when managers select their fund administrator.

"Managers should make sure that their service providers are closely aligned with their culture and mindset. You really need to act as a cohesive unit when servicing alternative funds. 

"Being a successful fund administrator also requires having a strong understanding of where a manager's offering might be going. It's important that a manager understands where their product offering is likely going to get the most traction with investors and then making sure they pick service providers that can support all the products that they might choose to develop."

U.S. Bancorp Fund Services has seen encouraging growth in niche areas of the market such as private equity, distressed credit and real estate. This has been possible thanks to the flexibility of its investments in technology and its ability to develop proprietary solutions whilst leveraging core technology. 

"We see an increasing blend between pure hedge fund strategies and pure private equity strategies. The same is happening in the liquid alternatives space, where we've seen a blend between alternative and traditional fund managers launching '40 Act alternative mutual funds," says Waldron.

She believes that the bank's long history of servicing the regulated '40 Act funds space, which dates back to 1969, gives it a clear differential edge. 

"It is an area of the market that fund administrators need to support as fund managers increasingly run unregistered as well as registered fund structures. The barrier to entry on the liquid alternatives side is much higher. You have to have a much wider degree of technology and infrastructure to be able to effectively support those types of products," concludes Waldron.

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