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Fund administration: Independence for confidence

Cost savings accelerate move towards independent administrators.

If there was a trend towards the use of independent fund administrators, it is now in full swing. Bernie Madoff’s lack of independent administrators has been held up as one more red flag that investors should have noted.

As a result, hedge funds are expected to move towards independent administrators now in order to instil confidence in their investors. Millennium, the $11 billion multi-strategy fund, extended its services from independent administrator GlobeOp in January.

Vernon Barback, GlobeOp president and chief operating officer, says he is expecting other large well-established funds to follow Millennium’s lead as scrutiny of fund administration increases.

In a white paper released in January on hedge fund outsourcing strategies, Paladyne Systems wrote that fund administrators will become of increasing importance.

Sameer Shalaby, chief executive of Paladyne Systems, says: "The combination of outsourced software, hosting services, IT and application support, market data, and robust disaster recovery at a fraction of the current in-house cost structure is far too compelling not to become the standard operating model for the hedge fund industry."

But in order to stay competitive administrators will have to expand their service offerings. This may well result in fund administrators teaming up with other firms to offer shared platforms.

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