Convergence Trend Shapes Fund Administration

Chidem Kurdas

A growing number of mutual funds offer hedge fund-type strategies.  This convergence trend is affecting not only managers but also other parts of the investment management industry, in particular fund administrators.  There is a move away from hedge funds as structure to hedge funds as strategy, says Pete Cherecwich, executive vice president and head of global fund services at Northern Trust.

There used to be mutual fund administration and hedge fund administration. But that separation has become less viable. The growth of European UCITS and American mutual funds with alternative investment strategies creates demand for combined administrative capabilities. An administrator has to be able to handle all asset classes and in different formats, Mr. Cherecwich says.

This is hard for smaller or more specialized administrators. As a result the consolidation of administrators through acquisitions, another trend, will no doubt continue.

This summer Northern Trust completed its acquisition of Citadel Group’s hedge fund administration business, Omnium. The acquisition combines the technology developed by Citadel with Northern Trust’s robust custodian capabilities, says Peter Sanchez, chief executive of Northern Trust Hedge Fund Services. The company has $4.4 trillion in  total assets under custody.

Citadel, a multi-asset, multi-strategy hedge fund manager, remains a client. But why did Citadel choose to sell the administration it initially developed  to provide services to its own trading desks? There are significant synergies with Northern Trust, Mr. Sanchez said.

Indeed, the administration business has greater potential as part of the larger company than it did under Citadel. Clients can get a wider range of services. Moreover, some hedge funds worried about providing their data to an arm of Citadel, a competitor. Having Northern Trust as the administrator puts an end to that concern.

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