There was a time when the fund administration sector was a relatively straightforward, one-dimensional affair.
There was a time when the fund administration sector was a relatively straightforward, one-dimensional affair. Third-party administrators had one basic purpose: to take all of the detail and processes involved in the back office from the client’s plate, and save the fund manager a dull job. In the early days this was enough of a novelty to be a selling point in itself, and fund administrators could compete on the basis of how accurately and cheaply they could provide this service.
Those days, however, are long gone. This is in part due to the vastly changed—and far more demanding—environment their clients now inhabit. A new wave of regulation has significantly increased the volume of data that funds need to capture and report. Risk management is now paramount in areas where it simply did not exist before. Investors and regulators alike are becoming more demanding, wanting greater engagement with, and information about, their investments. And the ever-fiercer competition for capital and returns is driving a greater demand for analytics, especially from active managers.
All of this has, in turn, had a major impact on the fund administration landscape. Over time, some of these firms have effectively become central hubs for a vast array of important data from multiple sources. The expanding and ever-more-complex workload has also necessitated significant investment in staff with higher intellectual capital. Fund administrators are no longer the clerical administrators of old.
These two factors have put the best fund administrators in a perfect position to expand their offering to help clients deal with some of the new priorities and challenges.
The result has been the rise of the multi-dimensional fund administrator, as firms have expanded sideways into new, complementary service lines. These include risk reporting, compliance, performance analytics, investor communications, legal service—almost any area where the fund administrator is able to produce value from the vast troves of data and expertise it is sitting on. There are distinct advantages to the end client in having all of these functions sitting under one roof: the thinking is more joined up, it allows for cost savings, and of course, it’s easier to manage one provider than a dozen.
To a large extent, this shift is a commercial necessity. Increased complexity, combined with the need for highly skilled staff, high levels of automation and expensive technology, has led to a ballooning of costs. Fund administrators are being forced to move up the value chain in order to protect margins. The business model of the old one-dimensional fund administrator is likely facing extinction.
The mere provision of administrative services is no longer a selling point—it’s a bare minimum. Nowadays, funds aren’t just looking for a provider that can take a problem off their plate, they are looking for a trusted partner that can actively add value to their core proposition
