Hedge Funds Ripe for Consolidation

Date: Thursday, September 4, 2008
Author: James Armstrong, Markets Media Online.com

A survey released Wednesday by Global Custodian ranked the world's top hedge fund administrators and found the industry could be in for consolidation in the near future.

The survey queried clients of 56 hedge fund administrators and received nearly 1,200 responses. It was the largest number of administrators the survey had ever analyzed and more hedge fund clients responded than ever before.

Among large firms, Citco Fund Services received the highest scores from its clients, followed by Goldman Sachs Administrative Services, IFS and PNC Global Investment Servicing. Smaller firms, however, scored somewhat higher with their clients. Kaufman Rossin Fund Services topped the list of smaller administrators, followed by ATC Fund Services, AIS Fund Administration and Pinnacle Fund Administration.

Despite the fact smaller firms tended to have more satisfied customers, Dominic Hobson, editor of Global Custodian, predicted greater merger and acquisition activity among administrators. He said it would be surprising if the industry were able to continue to support large numbers of providers.

"There is now evidence that a renewed round of consolidation is in the offing," Hobson said. "In any event, the buyers are likely to be different from the banks which dominated the acquisition process in the early years of this century."

Hobson predicts that in addition to administrators buying each other up, new firms will continue to form through back office spin-offs. There are also likely to be new start-ups looking to serve the smaller hedge funds now being dropped by major providers.