Crunch time for alternative fund administrators

Asia's alternative fund services industry is in a state of flux, with newcomers catering to small, indigenous funds while consolidation and cost-cutting is taking place at larger providers.

Administrators focusing on hedge funds are particularly vulnerable, as their income is directly tied to the AUM of their clientele. Total Asian hedge fund assets are at about $145 billion and have not yet recovered to the high of $192 billion recorded at the end of 2007.

Underlining the issue are the recent departures of Andrew Gordon from BNY Mellon, where he was head of alternative and broker-dealer services for Asia-Pacific, and Stewart Bent from Credit Suisse’s prime fund services business unit in the region.

Both are based in Hong Kong and are highly regarded veterans of the alternative fund services industry in Asia.

Gordon’s departure was confirmed by a BNY Mellon spokeswoman. A replacement has not yet been announced.

At Credit Suisse, it is understood that Bent has not been replaced since his exit a few months ago, with his duties having been undertaken by existing team members. The bank declined to comment on Bent’s departure.

Large hedge fund admin providers are known to be willing to take a loss on highly competitive administration fees in order to make money on related services, such as securities lending, cash management and trade execution.  

Fund administration is generally a low-margin industry and even the biggest players are not immune to a trend of cost-cutting and consolidation in the industry. In July, State Street agreed to acquire Goldman Sachs Administration Services, effectively creating one of the world’s biggest hedge fund administrators.

At the same time, smaller administrators catering to alternatives funds – particularly smaller strategies – have set up in Asia over the past year.

February saw Viteos establish a regional office in Singapore, with Vistra Fund Services doing the same in Hong Kong.

Last month, Taiwan’s SinoPac Financial Holdings announced its intention to launch hedge fund admin services in Asia by year-end, specifically targeting strategies managing under $100 million.

Seasoned members of the hedge fund services industry have questioned whether Asia’s hedge fund industry will be able to support a growing number of administrators. Only time will tell.