I’ve been spending some time in LinkedIn‘s hedge fund discussion boards. I came across this interesting question regarding the recent fraud scandals and how they effect hedge fund administration firms. I’m re-posting it for the benefit of those not on LinkedIn.
Here’s the question:
In light of recent developments in the hedge fund industry there is an increasing demand by investors that funds use outside administrators to validate their NAV and to provide investor service functions. I am curious as to how funds that are self-administered are addressing these demands and whether there is interest in administrative services being provided by companies other than traditional administrators, and with somewhat different pricing structures. I would also be interested in people’s experiences with their current administrators.
We have relationships with a lot of different funds as well as thousands of HNW and institutional investors through third-party marketing efforts. We are certainly seeing an immediate lack of investor interest in funds which are not independantly administered and audited.
I think we’re about to see a change in the way the traditional hedge fund administrators work. Until now a hedge fund with limited capital has not had the ability to give up 3-5% of their profit to a big administration firm on a monthly basis. Because of this, several non-traditional hedge fund administration firms have come into our radar who price their services in a way which is more suitable to smaller funds. As more and more small funds start using administration services these new pricing trends will filter up into the big Admin firms.
If you’re looking for allocations from fund of funds, family offices and and institutional investors having a top of the line administrator and auditor is essential and a cost of doing business with the big boys.